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Speaker 3: We had some economic data, of course today, Retail sales
Speaker 3: KIM in better than expected retail sales. The headline KIM
Speaker 3: at zero point one percent positive for the month of August.
Speaker 3: The expectation was negative zero point two percent, so better
Speaker 3: than expected. The prior period also revised up, So that
Speaker 3: kind of it's kind of a little bit different than
Speaker 3: what we hear from some of the retailers who kind
Speaker 3: of call out the weakness that they are seeing, particularly
Speaker 3: from the lower end of their consumers. But let's let's
Speaker 3: break down some of these numbers. We can do that
Speaker 3: with Joe Blanchard, President of Enterprise Client Solutions at Advantage Solutions. So, Jill,
Speaker 3: what did you make of the retail sales data we
Speaker 3: got this morning?
Speaker 4: So hello and thanks for having me back. It was
Speaker 4: a surprise, right, This could be indicative of many things,
Speaker 4: but the first thing that I'll point to is early
Speaker 4: holiday earlier holiday spending, and so retailers have been pulling
Speaker 4: holidays forward with good deals and it's kind of working.
Speaker 4: Sixty three percent of consumers that that they would buy
Speaker 4: products earlier if on sale. Holiday creep's always been a thing,
Speaker 4: but it's so exaggerated today that virtually every week of
Speaker 4: the year there's some sort of holiday in store. We
Speaker 4: saw that this summer with Summer ween, if you've heard
Speaker 4: that term before. So the back to school holiday shared
Speaker 4: shelf space with ghosts and skeletons, and a lot of
Speaker 4: orange and black TikTokers were making Jacko lanterns from watermelons.
Speaker 4: There were skeletons on pol floats. Starbucks brought the ever
Speaker 4: so popular Pumpkin spice latte out earlier than ever before,
Speaker 4: and home improvement stores jumped on the bad and wagon
Speaker 4: with halfway to Halloween in April in hopes of addressing
Speaker 4: their slugs sales as well as trying to deplete that
Speaker 4: inventory so they have less to discount come the first
Speaker 4: day of November. So that could also be you know,
Speaker 4: leaning in towards this increase spending.
Speaker 5: Well, Jill love of pumpkins spice Lotte, that's a good
Speaker 5: that's a good call out there. I wanted to know.
Speaker 6: So.
Speaker 5: Of course, when we're looking at retail sales, earnings and
Speaker 5: just all the data that's coming in, it can really
Speaker 5: feel like a slew. We can't really get a read
Speaker 5: on the consumer here. Has this offered us any more clarity?
Speaker 4: Offers more clarity? You know? Probably not, because again, consumers
Speaker 4: are really shifting the way that they spend. The predictions
Speaker 4: for this holiday seas that are to be softer than
Speaker 4: last year, or two percent versus three percent. We we
Speaker 4: we do see consumers continuing to buy, but trying to
Speaker 4: buy lower cost alternatives. We saw that with back to school,
Speaker 4: where the volume was flat but the dollars were down,
Speaker 4: indicating that they're buying. They're just finding cheaper ways to
Speaker 4: buy things. And I think we're going to see that
Speaker 4: this holiday season too, especially with things like the deep
Speaker 4: discount Chinese shopping apps t MoU, Shine, TikTok. Two thirds
Speaker 4: of consumers have shot those apps, and that's a number
Speaker 4: that will likely see go up. And I bring those
Speaker 4: up at the examples to answer your question because it's
Speaker 4: blurry out there. Things happening in both.
Speaker 3: Directions, Jill.
Speaker 7: For this holiday season, here.
Speaker 3: How promotional do you think retailers are going to have
Speaker 3: to be to drive their top line.
Speaker 4: They're going to have to continue to be very promotional
Speaker 4: to drive their top line. Historically, pricing and promotions were
Speaker 4: used to boost near end sales, but now they're used
Speaker 4: to boost everyday sales. And it's really driven by how
Speaker 4: consumers are spending and potentially a permanent shift in how
Speaker 4: they spend. And so we see a lot of growth
Speaker 4: from discount retailers, private brand sales in general, and consumers
Speaker 4: are definitely leaning in towards those strategies. In some household
Speaker 4: are doing even more things, you know, like using alternative
Speaker 4: pay pay plans like a buy now, pay later, getting
Speaker 4: a second job, sharing groceries, leaning on social media. The
Speaker 4: hashtag back to school Halls was a huge help to
Speaker 4: parents during back to school season.
Speaker 5: I mean, I think when we're looking at this and
Speaker 5: the market has really been on edge with investors really
Speaker 5: worrying about the consumer and how it may hurt the
Speaker 5: economy and the labor market, I mean, does this really
Speaker 5: show that the consumer may be stronger than many people think?
Speaker 4: Oh my, I'm so hesitant to lean into that. All
Speaker 4: predictions for the back half of this year as well
Speaker 4: as a holiday season. You know, aren't incredibly positive. Economists
Speaker 4: think that consumers will rein in their spending in the
Speaker 4: back even though we didn't see that with the results
Speaker 4: this morning, will rain in their spending in the back
Speaker 4: half of this year due to depleted pandemic savings. Lower
Speaker 4: income households have record levels of credit card debt uncertainty,
Speaker 4: and those low income households, by the way, are proportionally
Speaker 4: affected with inflation. We saw that a few weeks ago
Speaker 4: when Dollar General said that the weekest three weeks of
Speaker 4: their quarter were the last weeks of each month, indicating
Speaker 4: that consumers are really struggling to stretch that budget. So
Speaker 4: for those reasons, I'm super hesitant to lean into overall
Speaker 4: growth in the back half of this year. We still
Speaker 4: think it's going to be depressed.
Speaker 7: What is skimpflation.
Speaker 4: It's a great question. I'd say that this industry is
Speaker 4: not short of creativity, right, so we all know what
Speaker 4: shrinkflation is. We talked about upflation, which is that concept
Speaker 4: of fining a new use for an existing product. Skipflation
Speaker 4: is the concept of producing a product or a service
Speaker 4: with a lesser equality or not equality lesser price ingredient,
Speaker 4: So for a food product, or for a piece of
Speaker 4: clothing that could be a cheaper ingredient, or material for
Speaker 4: a service that could be something like a hotel's day
Speaker 4: with no cleaning service.
Speaker 3: Yeah, I've seen that more and more, but less and less.
Speaker 3: Night after the pandemic, pandemic was really prevalent.
Speaker 7: Now it's less, so definitely.
Speaker 5: I mean, we can't really look at any one data point,
Speaker 5: but as we're looking toward the Fed tomorrow, of course
Speaker 5: this will that's not necessarily play into this one, but
Speaker 5: we're looking toward the next job report. How is this
Speaker 5: just telling us about the strink of the economy more broadly.
Speaker 4: Yeah, so there's a lot of discussion around the rate
Speaker 4: cuts and what that might ultimately do to spending. Historically,
Speaker 4: spending goes up about a half percent in the year
Speaker 4: following a rate cut, but also goes down to to
Speaker 4: four percent in a recession. Where we are, you know,
Speaker 4: soft but not quite a recession. You know, we could
Speaker 4: see a slight decline in twenty twenty five, but overall,
Speaker 4: it's going to take a while to revitalize the economy
Speaker 4: via the rate cuts.
Speaker 3: Just real quick, Jill, how important is brand loyalty these days.
Speaker 4: Oh my gosh, I can't tell you how many times
Speaker 4: they say this. The new loyalty is disloyalty. Which, the
Speaker 4: new loyalty is disloyalty. We are training consumers to be disloyal.
Speaker 4: We are training them that there is always a deal
Speaker 4: to be had out there, whether it's at a different
Speaker 4: outlet or whether it's waiting. So loyalty has definitely declined
Speaker 4: and retailers are trying to get that back. So, for example,
Speaker 4: take retailers loyalty programs. It's a great way for retailers
Speaker 4: to pull that consumer into their store for that trip
Speaker 4: because it's the only place to get that price. But
Speaker 4: consumers beware. It often does have consumers buying things that
Speaker 4: they didn't need or more than they need. In fact,
Speaker 4: we just did a recent survey. We're eighty percent of
Speaker 4: consumers so that they're buying more product than they need
Speaker 4: because of a good deal.
Speaker 2: Ye.
Speaker 4: So it's a great strategy for retailers, but consumers aware.
Speaker 3: Entry load is what it's called. Jill Blanchard, thanks so
Speaker 3: much for joining us. Jill Blanchard. She's president of Enterprise
Speaker 3: Client Solutions. The firm name is Advantage Solutions. Joining us
Speaker 3: via zoom from California.
Speaker 2: Today, you're listening to the Bloomberg Intelligence Podcast. Catch us
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Speaker 2: Just say Alexa play Bloomberg eleven thirty.
Speaker 7: All right, it is time to get right to it.
Speaker 3: I'm going right to our guest, daniel De Martino, Booth
Speaker 3: CEO and chief strategist QI Research. You want to talk FED,
Speaker 3: this is the go to source. We're so glad to
Speaker 3: have her in our studio. She's based down on Dallas.
Speaker 3: She was a former FED person down there in the
Speaker 3: Dallas Fed, so she knows a thing or two about
Speaker 3: this Central bank. Here, Danielle, what do you think they
Speaker 3: should do tomorrow?
Speaker 8: I think they should have I mean, since we're doing
Speaker 8: shows right and by the way, by the way, I
Speaker 8: do analog. So it's my birthday today, so I'm just.
Speaker 7: I'm right there with you with them. Legal to drink
Speaker 7: now barely possibly. It's also lis In Saunders birthday.
Speaker 8: It is also lis In Saunders.
Speaker 7: We always are like that.
Speaker 8: The first ones to wish each other had we go
Speaker 8: down Constitution Day. Anyways, I think that they should have
Speaker 8: if we're doing shoulda kuda lowered in July? And I
Speaker 8: think that they know that, and I think that had
Speaker 8: they lowered in July, because they had a quote unquote
Speaker 8: real conversation about it, according to J. Powett, the podium
Speaker 8: that they would subsequently be lowering again twenty five basis
Speaker 8: points tomorrow, which is why I think fifty kind of
Speaker 8: makes sense because the level of interest rates fifty basis
Speaker 8: points lower than what it is right now is appropriate
Speaker 8: given Bloomberg's bankruptcies came in at eight in the last week,
Speaker 8: and we've seen another one since then, the second highest
Speaker 8: this year. I mean, obviously the lag effect is taking
Speaker 8: effect in the credit markets. It's much more difficult to
Speaker 8: find funding if you're a bad building or a bad business,
Speaker 8: so I think, And it's harder by a car, and
Speaker 8: it's harder to refinance your home, and it's a lot
Speaker 8: of things say that the level of interest rate is
Speaker 8: too high, and I think that that's what they should
Speaker 8: be focused on the level.
Speaker 5: So you said that you think that they should have
Speaker 5: cut back in July. So what are your expectations for tomorrow?
Speaker 5: I mean, are you in the more ambitious camp, are
Speaker 5: you looking for fifty basis point cut or so?
Speaker 8: I mean, I have Look, I've been around the Fed
Speaker 8: for a very long time, and to say, and Bloomberg
Speaker 8: does a great job of tracking the volatility in the
Speaker 8: uncertainty of the wagers on whether it's going to be
Speaker 8: twenty five or fifty, we haven't seen uncertainty this high
Speaker 8: since two thousand and seven, wow, in terms of the
Speaker 8: WORP WRP GO. So it's so difficult to say. And
Speaker 8: Bank of America came out and drew the lines hard
Speaker 8: this morning and they're like, it should only be twenty five,
Speaker 8: And Michael Furley at JP Morgan Chase is like, it
Speaker 8: absolutely should be fifty. My buddy, George Goncalvez at MUFG,
Speaker 8: kudos to him. He's been saying fifty the whole time
Speaker 8: because he's looking at the level. So I think that
Speaker 8: they've done enough broadcasting and moved markets to a great
Speaker 8: enough extent to break the seventy five percent rule.
Speaker 7: If need be.
Speaker 8: But that's what it would come down to, It would
Speaker 8: be breaking the seventy five percent probability role.
Speaker 3: So once the FED does begin tomorrow, what's the cadence
Speaker 3: after that, Like, when would they like to be done?
Speaker 7: Where would I mean, how does that all work?
Speaker 8: So I think it from my experience on the inside,
Speaker 8: you sort of know it's time to ease off on
Speaker 8: on easing, yep, when you start to see the lag
Speaker 8: effect from tightening dissipate. Okay, And those are things that
Speaker 8: are visible right because BC, why go you can track
Speaker 8: the level of bankruptcy, you can track the level of
Speaker 8: distress in the system. When that starts to ebb off,
Speaker 8: then obviously financing is opening up enough to provide adequate
Speaker 8: liquidity to the system, adequate liquidity to the credit markets.
Speaker 7: And so that's kind of when you know yep.
Speaker 8: And I think J Powell at AL, I think it's
Speaker 8: what's unique right now is we've got a FED that
Speaker 8: wants to stop with a two or three percent handle.
Speaker 8: They're like, you know, we can put three percentage points
Speaker 8: of cuts out there and still not have to worry
Speaker 8: about going back to the zero bound, which they know
Speaker 8: is a failed experiment and encouraged too much speculation.
Speaker 5: And going off of that, I mean, markets are pricing
Speaker 5: north of one hundred basis plantes of cuts through the
Speaker 5: end of this year. If that holds, does that mean
Speaker 5: that the later meetings would all be fifty basis? How
Speaker 5: would that work exactly?
Speaker 8: You know, I look, j Powell is the least political
Speaker 8: FED chair since Paul Volker wondered the buildings and gave
Speaker 8: the staff and you know, seminars on on why the
Speaker 8: tailor rode was broken just for fun and did not
Speaker 8: care what Wall Street thought. Jay Powell is very a
Speaker 8: political So if it needs to be fifty, it'll be fifty.
Speaker 8: Because he's when he says I'm data dependent, he's dated dependent.
Speaker 8: If we see that, you know, there's enough gig workers
Speaker 8: out there that have been absorbed and ergo, they're finally
Speaker 8: starting to apply for unemployment because we're seeing a massive
Speaker 8: runoff from the million full time jobs we've lost in
Speaker 8: the last twelve months into the part time for economic reasons.
Speaker 5: Pool.
Speaker 8: I had an uber driver yesterday, first drive of his
Speaker 8: Uber life.
Speaker 7: Wow.
Speaker 8: But you get that a lot because people are like, Okay,
Speaker 8: the state's gonna get wherever I live, stay x y. Heck,
Speaker 8: if it's tennessee twelve whole weeks, that's their max for
Speaker 8: unemployment benefits. I can maybe get two hundred and ninety
Speaker 8: five from the state, or I can get at least
Speaker 8: five seven one thousand dollars five hundred and seven driving Uber,
Speaker 8: delivering door dash, whatever it is. But at some point
Speaker 8: you're going to saturate that market in terms of I mean,
Speaker 8: it's a lot quicker to get an Uber today than
Speaker 8: it was nine months ago.
Speaker 3: So just real quick, what's the labor number that gets
Speaker 3: you spooked, whether it's an unemployment rate or just what's
Speaker 3: the labor number that gets you spooked?
Speaker 7: To maybe art you might already be there.
Speaker 3: I don't know.
Speaker 8: Well, I'm kind of are yeah, spoop. I really am.
Speaker 8: To see the rise in part time employment. To see
Speaker 8: the economic depopulation ratio already dive down into recessionary territory
Speaker 8: that's on par with that of the two thousand and
Speaker 8: seven two thousand and nine Great Recession. To see in
Speaker 8: University of Michigan bad news heard on unemployment go spiking.
Speaker 8: To see people's expectations for their income go down for
Speaker 8: six months in a row. That's a data series that
Speaker 8: goes back to nineteen eighty. We've never seen six months
Speaker 8: in a row of people saying my income is going
Speaker 8: to decline in the coming twelve months. Why is that
Speaker 8: because they're going from full time to part time. They
Speaker 8: know that what they're we have three hundred and seventy
Speaker 8: nine thousand and fifty five year old plus rejoin the
Speaker 8: workforce in August. Hey, I'm going to go back to
Speaker 8: work to help my kid who doesn't have a full
Speaker 8: time job anymore. We've got to put food on the
Speaker 8: table for the grandkids.
Speaker 3: And I just saw that Sam's Club they're raising the
Speaker 3: base rates starting wages in the US from fifteen to
Speaker 3: sixteen dollars. And I keep an eye on that because
Speaker 3: my last job will be as a greader at walmart
Speaker 3: Danielle Dee martinmo Booth CEO, Chief Strategist QI Research during
Speaker 3: US Live here in a Bloomerg interrector Broker studio, which
Speaker 3: is an absolutely perfect guest to have the day before
Speaker 3: the FED.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on Apple car Playing and
Speaker 2: broud Otto with the Bloomberg Business app. Listen on demand
Speaker 2: wherever you get your podcasts, or watch us live on YouTube.
Speaker 7: Nor are you a TikToker?
Speaker 5: I am. I'm excited for this segment.
Speaker 3: All right, Well good, I mean, I'm not even going
Speaker 3: to ask John Tucker he's a TikToker. I know where
Speaker 3: that's going to stay.
Speaker 7: Do you know what that is? What's that?
Speaker 5: You go?
Speaker 7: All right?
Speaker 3: Apparently yesterday the hearing went poorly for TikTok and it's
Speaker 3: legal fight against a US law enforcing servers and app
Speaker 3: stores stop hosting the video sharing app in January. That's
Speaker 3: not bueno for them. Matt Sheltonham, he follows all of
Speaker 3: this stuff media litigation. He's down in Washington, d C.
Speaker 3: For Bloomberg Intelligence.
Speaker 7: MAC.
Speaker 3: You summarize what the case was before the court and
Speaker 3: what their ruling was. Are we gonna be able to
Speaker 3: still have TikTok come January?
Speaker 2: Well?
Speaker 6: I think if TikTok wasn't concerned about a potential ban
Speaker 6: before yesterday's hearing, it should be concerned after that hearing.
Speaker 7: Yesterday it did not go.
Speaker 6: Well for the company. What's an issue here is in April,
Speaker 6: Congress passed a law that said unless TikTok is divested
Speaker 6: to a company that doesn't have its parent in China,
Speaker 6: that companies in the US can no longer carry the app.
Speaker 6: In app stores. Companies can no longer host it in
Speaker 6: a way that the app can be distributed, updated, or
Speaker 6: maintained in the United States, all of as of January nineteenth,
Speaker 6: and TikTok is said, look, we can't do a divestiture.
Speaker 6: It's certainly not on that timeline. And so TikTok's only
Speaker 6: chance to survive in the United States after January nineteenth
Speaker 6: is to win this legal case. And yesterday's hearing was
Speaker 6: the big, big hearing on the case, and the three
Speaker 6: judges on the case, in my view, were not very
Speaker 6: sympathetic to the company's First Amendment case.
Speaker 5: And so is this isolated to the United States? Are
Speaker 5: there any other you know, countries that are also trying
Speaker 5: to crack down on TikTok and its influence.
Speaker 6: I think different countries are taking different approaches. The EU
Speaker 6: has taken a harder approach to tech regulation generally and
Speaker 6: likely would apply that to TikTok without a specific ban
Speaker 6: in the same way. According to our analyst Hamlin Basin.
Speaker 6: There so this law is US specific. It was passed
Speaker 6: by Congress specifically to target the company, and so it's
Speaker 6: a different remedy here in the US. But there's a
Speaker 6: tendency I think to think, you know, nothing's going to
Speaker 6: happen in Congress. Nothing ever gets done there, just a
Speaker 6: lot of talk. Well, here, Congress did it. It's done.
Speaker 6: It's law, and TikTok's only chance to overcome it is
Speaker 6: to win this legal case.
Speaker 3: So the parent company for TikTok is Byte Dance, a
Speaker 3: Chinese controlled company. If I've misstated that, let me know
Speaker 3: what has Bite Dance said about their options, what they
Speaker 3: plan to do scenarios.
Speaker 6: Yeah, so that's right, that Byte Dance is the parent
Speaker 6: company of TikTok. Now, TikTok is a is a US subsidiary,
Speaker 6: It's a US company. TikTok is a privately owned company,
Speaker 6: but it happens to have its headquarters in China, and
Speaker 6: that's the concern. And you know, TikTok and Byte Dance
Speaker 6: in this legal case have basically said, look, a divestiture
Speaker 6: is just not technically or legally feasible. And so there's
Speaker 6: really no indication that they're pursuing a divestiture at this point,
Speaker 6: and at least that's their indication to the court. The
Speaker 6: law allows a ninety day extension if the president sees
Speaker 6: their making progress on a sale, but the company, they've
Speaker 6: made no indication they're pursuing that route. They say this
Speaker 6: is a blatant violation of the constitution, and so they
Speaker 6: think they can win in court. But I'm not so
Speaker 6: sure after yesterday's hearing.
Speaker 5: I mean, so what do analysts think are the brought
Speaker 5: would be the broader readout for the corporate side of things.
Speaker 5: I mean, of course, we know so many companies actually
Speaker 5: promote their products and their companies on TikTok. I mean,
Speaker 5: when I'm scrolling through, I'm always seeing a new pitch.
Speaker 5: So what does that look like in terms of advertisement
Speaker 5: and the ripple effects there?
Speaker 6: Yeah, that's right, And part of the litigation yesterday was
Speaker 6: brought by users of TikTok that say, look, there isn't
Speaker 6: a good substitute.
Speaker 7: Yeah, there are other.
Speaker 6: Social media companies, but we've built our businesses here. We
Speaker 6: are expressing ourselves as a first Amendment matter on TikTok,
Speaker 6: and the government can't take that away. And there's also
Speaker 6: a big business impact in terms of TikTok's competitors. Is
Speaker 6: one of the leading social media apps in the country,
Speaker 6: so if it goes away, it's a great opportunity for
Speaker 6: the competitors for Google, for Meta and so there are
Speaker 6: serious business implications by forcing a divestiture that isn't going
Speaker 6: to happen in effectively forcing a ban.
Speaker 7: Is this something that could get to the Supreme Court.
Speaker 6: Yes, So if TikTok loses in the DC Circuit, I
Speaker 6: expect we'll see a decision by early December from the
Speaker 6: DC Circuit. As I said, the key deadline is January
Speaker 6: nineteenth here, so there's not a lot of time. If
Speaker 6: we see a decision in December from the DC Circuit,
Speaker 6: TikTok's realistic only chance at that point is going to
Speaker 6: be a last ditch plea to the Supreme Court to
Speaker 6: hit pause on this, to say, look, nothing should move
Speaker 6: this fast when you have such a major restriction under
Speaker 6: the First Amendment. The Supreme Court should issue a stay
Speaker 6: and take up this case. That's going to be the
Speaker 6: TikTok's last chance to dodge a man by January nineteenth
Speaker 6: if this ruling goes against it, and I'm not sure
Speaker 6: the Supreme Court will necessarily take it. Yes, it's a
Speaker 6: major question that they might be interested in. But if
Speaker 6: TikTok gets a major loss at the d C Circuit.
Speaker 6: The Supreme Court could say, look, you know they got
Speaker 6: it right. We don't need to step in here. So
Speaker 6: it's not even a sure thing that the Supreme.
Speaker 9: Court will take it.
Speaker 6: We'll have to watch that in after the d C
Speaker 6: Circuit rules.
Speaker 3: All right, Matt, thanks so much for joining us. Expert
Speaker 3: expert analysis there tall you folks. It's hard to find
Speaker 3: that kind of analysis anywhere else but Bloomberg Intelligence. Mett
Speaker 3: shutting home media litigation analysts from Bloomberg intelp just down
Speaker 3: in Washington, DC.
Speaker 7: It's a huge case. I mean, you think about.
Speaker 3: Not just all the people that are on TikTok, but
Speaker 3: all the businesses that are built upon.
Speaker 5: What happens to the dances.
Speaker 7: Are we not going to dance anymore? Exact?
Speaker 9: So you'll get like fifteen second videos of some guy
Speaker 9: chopping wood or somebody dancing.
Speaker 7: I don't know something. We're afraid that we're going to lose.
Speaker 7: That it's going to be big. We'll stay on top
Speaker 7: of it. This is Bloomberg.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: It's not just us here at Bloomberg that are fixating
Speaker 3: on what the Fed's going to do tomorrow. Real people,
Speaker 3: smart people in Cleveland, Ohio, they also are going to
Speaker 3: focus on that. Anna Rothbund joints us here. She's a
Speaker 3: chief investment officer lyrical sopranis soprano, lyrical soprano Seebiz Investment
Speaker 3: Advisory Services. They're based in Cleveland, but she joins us
Speaker 3: here in our Bloomberg Interactive Brokers studio. So on, when
Speaker 3: you take a look at your portfolio, kind of the
Speaker 3: advice you're giving your clients, what have you been telling
Speaker 3: them about the FED and what the Fed's doing and
Speaker 3: why it matters or does it matter that those types
Speaker 3: of discussions.
Speaker 1: Oh it matters, Okay, you know it has plateaued for
Speaker 1: over a year now, and they're tomorrow twenty five or fifty.
Speaker 1: In some ways it doesn't matter because it's just the
Speaker 1: first step that they're taking in what we believe is
Speaker 1: a cycle of cuts. It's still going to be restrictive
Speaker 1: after twenty five basis points or fifty. We do think
Speaker 1: that there are other considerations they need to think about,
Speaker 1: which is, if you go back to the March projections
Speaker 1: and then look at the June projections, there was a
Speaker 1: huge revision, right, they got more hawkish. Now it looks
Speaker 1: like the March revisions maybe they had they it would
Speaker 1: have been better if they had stayed put. So if
Speaker 1: we look at that, we have three cuts coming up,
Speaker 1: twenty five basis points each September tomorrow twenty five basis
Speaker 1: points that we're expecting, and then maybe November and another
Speaker 1: one in December. So that's what we've been sort of
Speaker 1: relaying to our clients and certainly preparing our portfolios.
Speaker 5: And this has definitely been such an interesting cycle, unprecedented.
Speaker 5: But I mean, when you're looking at those projections for
Speaker 5: cuts throughout the end of the year, is that based
Speaker 5: on historical patterns or are you all you know, what's
Speaker 5: the thought process behind not moving forward?
Speaker 7: I don't think history helps us, right, not at all.
Speaker 1: No, it's you know, this was a pandemic driven inflation
Speaker 1: and the Fed had to do something pretty dramatic coming down.
Speaker 1: I mean it was sort of obviously had to raise rates, right,
Speaker 1: maybe it wasn't at the time, but in hindsight it
Speaker 1: was going down. I don't think is going to be
Speaker 1: as easy.
Speaker 7: And the data.
Speaker 1: Dependency, I think comes from the fact that we can't
Speaker 1: rely on history. But at the same time, data dependency
Speaker 1: is making things very volatile, especially on market expectations. So
Speaker 1: we're literally taking I mean we're taking it three cuts
Speaker 1: in twenty twenty four, but also one meeting at a time.
Speaker 3: How about if you haven't put cash to work here,
Speaker 3: I don't know, it's kind of tough one. I think
Speaker 3: John Tucker was going to put some cash to work
Speaker 3: in some money market at four point was it six
Speaker 3: percent or something?
Speaker 9: Was well known the Goldman Sachs markets market. Just like
Speaker 9: my question is of our stock's going to see competition
Speaker 9: from the higher or for bonds at some point fixed.
Speaker 1: Income, well, cash has been nearer five and there was
Speaker 1: no competition, right, So I'm not sure if bonds are
Speaker 1: going to be necessarily any different now the price has
Speaker 1: been it's been favorable for bonds, right, but that also
Speaker 1: means the incomes going down, so lock them in.
Speaker 3: We've heard some people maybe reposition the portfolio, maybe maybe
Speaker 3: take some of the gains from the stocks that really run,
Speaker 3: whether it's the big tech and putting.
Speaker 7: Is that something you guys do too, and repositioning your portfolio.
Speaker 7: How often do you do that?
Speaker 1: Yeah, So we have institutional portfolios, so we have it's
Speaker 1: pretty much fully invested and there's an ips that we
Speaker 1: have to stick to. So what we do is oftentimes
Speaker 1: we have seen this in the last not just two years,
Speaker 1: but going back to pre pandemic, a huge discrepancy between
Speaker 1: growth stocks and value stocks. So we do separate them.
Speaker 1: And when growth stocks run as they have, we take
Speaker 1: the gains. We take the gains and reinvest it into
Speaker 1: the cheaper stock. So that's kind of how we deal
Speaker 1: with some of the irrationalities of the market.
Speaker 5: So I'm always looking at interest rate sensitive sectors as
Speaker 5: I'm sure everyone is. I look at real estate stocks,
Speaker 5: I cover them. Are there any sectors in particular that
Speaker 5: you're really eyeing as we head through this, you know,
Speaker 5: rate cut cycle. Are there any sectors that you think
Speaker 5: could really outperform from this?
Speaker 1: So small caps certainly, and we have seen that actually
Speaker 1: starting in July. Also starting in July, what you saw
Speaker 1: were some rates public rates that were recovering just to
Speaker 1: give a sense. I think office rates since the end
Speaker 1: of twenty twenty one, when FED really started to raise rates,
Speaker 1: it was down like forty percent or so, but you
Speaker 1: really saw that recover since July. So a lot of
Speaker 1: the interest rates sensitive areas. Not every area was max seven,
Speaker 1: definitely wasn't. I think those areas are poised to.
Speaker 3: Outperform, and again they're are performing today. The S and
Speaker 3: P five hundreds up four tens of one percent, but
Speaker 3: the Russell two thousand and so point seven percent, so
Speaker 3: we're starting to see that already. Anna, thank you so
Speaker 3: much for joining us on a Rathbund Chief Investment Officer
Speaker 3: lyrical soprano. I am googling for some of her performances
Speaker 3: as we speak.
Speaker 7: That's what I was doing earlier.
Speaker 3: Oh no, so I'll be checking it out on the
Speaker 3: commute home here see BIZ Investment Advisory Services.
Speaker 7: That's the day job.
Speaker 3: But a lyrical soprano, I want.
Speaker 5: To learn to hit those notes.
Speaker 7: Oh please.
Speaker 3: My sister's a great singer, so she's the only one
Speaker 3: that got to I think I'm like.
Speaker 5: An alto too. Whatever is probably maybe right before tenor okay,
Speaker 5: we can't do a due.
Speaker 7: Get up there. Thank you.
Speaker 9: So much.
Speaker 2: Annah, you're listening to the Bloomberg Intelligence Podcast. Catch us
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Speaker 3: We love talking to Kate Richard. She's the CEO and
Speaker 3: co CIO at Warwick Investment Group. We love talking to
Speaker 3: Kate just to get a So what's happening in the
Speaker 3: world of global energy, natural gas, crude oil? Kate, thanks
Speaker 3: so much for joining us here in our studio. Let's
Speaker 3: talk about just WTI crude oil WORRE. It's seventy one
Speaker 3: bucks a barrel here, we did fall below seventy here.
Speaker 3: Give us the state of just global crude oil. Is
Speaker 3: it a supply issue that's.
Speaker 7: Been pulling oil down or is it demander a little
Speaker 7: bit of both.
Speaker 10: I would say it's probably sentiment more than anything else.
Speaker 10: There's nothing that could explain a twenty to twenty five
Speaker 10: dollars barrel drop in prices for oil fundamentally. But it's
Speaker 10: very important to remember that oil is often not a
Speaker 10: fundamentally driven commodity in terms of pricing, the financial demand
Speaker 10: for oil and petroleum products is actually thirty times the
Speaker 10: size of the physical market. So if you look at
Speaker 10: all of the contracts that are treating for oil and
Speaker 10: oil products such as gasoline, jet fuel, et cetera, that
Speaker 10: market is thirty times the size of the actual physical
Speaker 10: market for oil. And so what that means is that
Speaker 10: the financial sentiment around oil can actually have an enormous
Speaker 10: impact on prices that isn't actually reflected in fundamentals. And
Speaker 10: I'll talk about fundamentals.
Speaker 7: In a second.
Speaker 10: If you go back to twenty fifteen to kind of
Speaker 10: illustrate the point that I just made, in twenty fifteen,
Speaker 10: we had a two percent oversupply, so not horribly oversupplied
Speaker 10: market that triggered a sixty percent price decline. That doesn't
Speaker 10: happen in a normal market. You don't have like a
Speaker 10: two percent oversupply and multifamily and a sixty percent decline
Speaker 10: in rents. So that's fundamentally what we're dealing with in
Speaker 10: terms of sort of the sentiment around oil, and that
Speaker 10: kind of goes to the hedge fund point we were
Speaker 10: talking about earlier. I will say that this sentiment around
Speaker 10: oil is a little bit driven by Chinese demand. So
Speaker 10: Chinese demand numbers are not great. They actually contracted in
Speaker 10: Q two on a year over a year basis. However,
Speaker 10: twenty twenty three was exceptionally strong, and China is about
Speaker 10: seventeen percent of the market. When we look at the
Speaker 10: idea that you could extrapolate Chinese demand to what's actually
Speaker 10: going to happen in oil prices, I would say two things.
Speaker 10: Number one, the correlation of Chinese demand to global demand,
Speaker 10: so seventeen million barrels a day of demand to what
Speaker 10: happens with the other eighty three million barrels a day
Speaker 10: of demand is like six point eight percent, So on
Speaker 10: an our square basis, that's meaningless. And if you look
Speaker 10: at Chinese demand, when you look at Chinese demand to
Speaker 10: non OECD demand, which has been a driver oil growth,
Speaker 10: and so that's important, it's zero point one percent, so
Speaker 10: obviously meaningless as well. So China's weighing on sentiment, but
Speaker 10: we need to think about what that actually means in
Speaker 10: terms of global demand growth. And the last thing I
Speaker 10: would say is that oil and gasoline demand were at
Speaker 10: all time highs last year, and they are also at
Speaker 10: all time highs this year, so really nothing.
Speaker 9: To explode three dollars a gallon, I'm coming.
Speaker 3: In gasoline correspondent, this is guy.
Speaker 10: Well, I mean, you could the FED can think oil
Speaker 10: prices for being able to, you know, even entertain a cut.
Speaker 10: If you had ninety to one hundred dollars oil prices
Speaker 10: right now there, it would be.
Speaker 9: Said on an inflation adjusted basis deflation.
Speaker 6: Good question.
Speaker 10: Oil is at two thousand and four levels. Wow, wow,
Speaker 10: which is incredible for the most probably valuable commodity in
Speaker 10: the world.
Speaker 5: So, I mean, of course we're sitting here in a
Speaker 5: very special week. We've got the FED tomorrow. How does
Speaker 5: this all play into that expand a bit more on that.
Speaker 10: Well, you know, obviously, I think when you look at
Speaker 10: the impact to consumers, we also are thinking about it
Speaker 10: being an election year, and I would not say that
Speaker 10: the correlation is you know, it's a spurious, spurious in
Speaker 10: terms of correlation, and it may not be causal. But
Speaker 10: normally we have weak oil prices in an election year.
Speaker 7: That's number one.
Speaker 10: Number two, it's refinery turnaround season after peak driving season,
Speaker 10: and so you are going to have you know, refineries
Speaker 10: undergoing maintenance, so they will be consuming less oil that
Speaker 10: will make demand look a little bit worse, and so
Speaker 10: we're seeing a little bit of an impact from that.
Speaker 10: But you know, when you look at like overall inflation levels,
Speaker 10: inflation has cooled over the past year, but we're not
Speaker 10: back to twenty nineteen levels. We're still you know, if
Speaker 10: you look at the price of bread to gasoline, you're
Speaker 10: still much higher than twenty nineteen levels. And oil just
Speaker 10: has helped a little bit because it probably really is undervalued,
Speaker 10: especially relative to the cost of supply.
Speaker 3: Alps front, at least from my perspective and reporting on
Speaker 3: this whole AI play for global energy, and it comes
Speaker 3: down to simply, you're going to build all these computer
Speaker 3: farms and things and all that kind of stuff. Somebody's
Speaker 3: got to fuel it. And the question is it coal?
Speaker 3: Is it gas? Is it oil? Is it nuclear? How
Speaker 3: do you guys think about that?
Speaker 2: Whole thing?
Speaker 3: Is people trying to say there's an energy play here
Speaker 3: to AI.
Speaker 10: Yeah, I mean the future of AI is going to
Speaker 10: be who controls the energy infrastructure related to it? Clearly,
Speaker 10: and so then the question becomes is it natural gas,
Speaker 10: is it nuclear? Is it renewables?
Speaker 8: Is it coal?
Speaker 10: I think that you know, what we see as big
Speaker 10: tech is certainly hanging hopes on the AI revolution and
Speaker 10: the growth and data centers that will be needed on
Speaker 10: a nuclear renaissance, and there's some interesting things to say
Speaker 10: with respect to that. So number one, uranium prices are
Speaker 10: down twenty percent, and that's partly because Kazakhstan announced that
Speaker 10: it's increasing production a bit. Secondly, the House and Senate
Speaker 10: just passed a ban on Russian imports of uranium, which
Speaker 10: is about twenty percent of the US market. US is
Speaker 10: the largest consumer of uranium in the world and that
Speaker 10: kicks in in twenty twenty eight, so the US consumers
Speaker 10: will be needing to look for alternative sources of supply
Speaker 10: for about twenty percent of their supply. And lastly, we
Speaker 10: are starting to see groups like Amazon go and buy
Speaker 10: nuclear power plants to see if they can power some
Speaker 10: of data centers with uranium powered. Nuclear nuclear is clearly
Speaker 10: carbon neutral, and it also has the most uptime of
Speaker 10: any power producing asset in the world. It's like over
Speaker 10: ninety percent uptime, So uranium is very interesting, especially given
Speaker 10: the selloff. The other question is how much of this
Speaker 10: is powered by natural gas, and that is a very
Speaker 10: interesting strategic question for the US, because the US is
Speaker 10: North America is a natural gas province, and we are
Speaker 10: the Saudi Arabia of natural gas, and we have cheap
Speaker 10: domestics sources, especially with gas at two forty. However, gas
Speaker 10: is in pretty steep contango. So December twenty twenty four
Speaker 10: prices are at three dollars three dollars a M versus
Speaker 10: you know, two forty spot prices, and next year it's
Speaker 10: at three eighty and M. So that it shows that
Speaker 10: we're in pretty steep contango. The market's expecting future higher prices,
Speaker 10: but remember gas is fundamentally driven by weather, and if
Speaker 10: winter doesn't show up this year, as it has not
Speaker 10: for the past three winters, you could see lower prices.
Speaker 3: Although I have to admit, I just got a tweet
Speaker 3: from one of my favorite ski resorts out west. It's
Speaker 3: snowed last night.
Speaker 7: It's coming.
Speaker 5: Good news almost times guess that.
Speaker 7: Guess now?
Speaker 3: I just looked at my little Bloomberg charge down like
Speaker 3: thirty percent from recent highs over the last year.
Speaker 7: So is that a supply issue?
Speaker 10: Yeah, You've had a fair amount of new supply come
Speaker 10: online in the US because of droll and completed wells
Speaker 10: and you also have to remember that most oil wells
Speaker 10: in the US produce natural gas as well. You know,
Speaker 10: like thirty percent of permium production right now is natural gas,
Speaker 10: and as those wells get older, they become gas or overtime.
Speaker 10: So this is one of the reasons that people have
Speaker 10: confidence in building petrochemical and lergy export facilities in the
Speaker 10: US because we have such robust supply and we're even
Speaker 10: getting it basically as a free buy product from our
Speaker 10: oil wells.
Speaker 5: And I know, as we were talking about earlier, hedge
Speaker 5: funds are net suor oil for the first time since
Speaker 5: the datas started being collected in twenty eleven. I mean,
Speaker 5: when we think about smart money making this decision, do
Speaker 5: you think that that permeates into the rest of the
Speaker 5: market when we're looking at investors more broadly.
Speaker 10: I think tactically, Number one, it's refinery season. It's refinery
Speaker 10: maintenance season, so your bid for oil is less. That's
Speaker 10: number one. Number Two, it's an election season, and usually
Speaker 10: prices go down into an election. I mean you could
Speaker 10: say that's in the interest of an incumbents. And then lastly,
Speaker 10: you have a weak Chinese number and that is going
Speaker 10: to spook the market, although we do not think weak
Speaker 10: Chinese demand can be extrapolated to global demand today. So
Speaker 10: if I were tactically positioning, I would say I would
Speaker 10: be pretty net short too, however, but I would probably
Speaker 10: close that trade out pretty quickly because we have probably
Speaker 10: the most disciplined OPEC we've ever had, and OPEK under
Speaker 10: the current Saudi leadership is very focused on price stability.
Speaker 10: They do not want thirty they do not want one
Speaker 10: hundred and twenty dollars oil. They really want it to
Speaker 10: stay in a tight band because they view that as
Speaker 10: best for their customers, and they've done a very good
Speaker 10: job governing the market. So you know, just an example
Speaker 10: of that is two weeks ago, OPEC came out and
Speaker 10: said we were supposed to increase production one hundred and
Speaker 10: eighty thousand barrels a day, and we won't. And that's
Speaker 10: how they're governing the market. So I think you can
Speaker 10: make these tactical trades, but you're probably trading in a
Speaker 10: tighter band.
Speaker 6: Now.
Speaker 10: It doesn't mean that you won't. You couldn't have a
Speaker 10: temporary real trade off or trade up, but I think
Speaker 10: you have a market that's being governed in bands the
Speaker 10: way that it wasn't in two thousand and eight, for example,
Speaker 10: is the.
Speaker 3: Fact that the US is now a net exporter for
Speaker 3: the first time like in ever? Does that undercut Opek's
Speaker 3: ability to really be that driver of price.
Speaker 10: OPEC has teamed up with Russia and they are definitely
Speaker 10: the largest producer in the world. US is like thirteen
Speaker 10: percent of supply.
Speaker 7: So a lot though, isn't that on the margin? Does
Speaker 7: that not impact that?
Speaker 3: So I got some knucklehead in Texas or you know,
Speaker 3: Louisiana pump and oil because he or she can and
Speaker 3: their cost is for your fifty dollars a barrel?
Speaker 7: Is that not impact the world markets?
Speaker 2: It does?
Speaker 10: It absolutely does. The point I'm really making is that
Speaker 10: OPEK has a cartel with Russia, controls over a third
Speaker 10: of global production, and they have been committed to price stability.
Speaker 10: But yes, of global production growth over the past ten
Speaker 10: years has come from the United States. Right, the United
Speaker 10: States is really only jurisdiction.
Speaker 9: But here's here's the final question. Can you answer this one?
Speaker 9: Because nobody else can and I can't and you can't.
Speaker 9: Why can't we pump gas in New Jersey?
Speaker 5: Do you have any ideas The question of the day it.
Speaker 9: Actually there are only two states.
Speaker 5: It's I don't think it's you mean where they pump
Speaker 5: it for you, right.
Speaker 7: A pump it for you organ. That organ just went
Speaker 7: to like, it's a good question.
Speaker 5: I think it's a luxury.
Speaker 7: I agree, and it's a luxury for you. Thanks Homer.
Speaker 3: All right, that's how we roll, Kate. We see when
Speaker 3: Alex is not here, we go off the rails. Yber.
Speaker 7: We appreciate it. Kate. Thank you so much for joining us.
Speaker 3: You know some of the smartest talk that we have
Speaker 3: discussion that we have on global energy, thanks to Kate
Speaker 3: Richards as CEO and co CIO of Wark Investment Group
Speaker 3: joining us live here in our Bloomberg Interactive Broker studio.
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