Speaker 1: Welcome to the Bloomberg Penl podcast on Paul Swing You.
Speaker 1: Along with my co host Lisa Brahmas, each day we
Speaker 1: bring you the most noteworthy and useful interviews for you
Speaker 1: and your money, whether at the grocery store or the
Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
Speaker 1: or wherever you listen to podcasts, as well as that
Speaker 1: Bloomberg dot com. The conundrum baked into today's markets. You're
Speaker 1: seeing that sell off deepen in the face of the
Speaker 1: spreading coronavirus, and yet a lot of people saying the
Speaker 1: US will remain intact, will remain immune or relatively so,
Speaker 1: to the deepening a health crisis across Asia. Joining us
Speaker 1: now to talk about exactly how to play the US
Speaker 1: market amid the increasing macroeconomics uncertainty. David Deats, president and
Speaker 1: chief investment strategist at Point View Wealth Management that has
Speaker 1: more than seven billion dollars under management, joining us on
Speaker 1: the phone from Summit, New Jersey. I'm wondering, David, considering
Speaker 1: the fact that you have studied through the eras classical literature,
Speaker 1: You've studied law, You've studied a whole host of things
Speaker 1: at a variety of degree easy worked with a lot
Speaker 1: of different people who are trying to figure out how
Speaker 1: to navigate this incredibly complicated market. What do you buy
Speaker 1: on a daylight today when fear is the prevailing sentiment? Well, so,
Speaker 1: I think it all goes down to your time horizon. Um. Clearly,
Speaker 1: one of the big drivers today is the spread of
Speaker 1: the corona virus. And the best way to figure out
Speaker 1: where that may be taking us is to look at
Speaker 1: these epidemics that we've had in the past, mayors, stars, hiv,
Speaker 1: et cetera, over the last let's say, uh forty years,
Speaker 1: and we have done that study here. And what's interesting is,
Speaker 1: other than the HIV age situation the early eighties, the
Speaker 1: market has invariably up significantly after the first onset of
Speaker 1: these epidemics. Um. Why is that? Well, typically what happens,
Speaker 1: of course, is the vaccine makers get on the bandwagon,
Speaker 1: and we've seen the stocks and some of these vaccine
Speaker 1: makers double and even triple because there is an opportunity here. Um.
Speaker 1: And and typically the tipping point is when the World
Speaker 1: Health Organization declares an emergency, because at that point is
Speaker 1: fully discounted in the market. Now we could be wrong here,
Speaker 1: but UM, and certainly that's this is not advice to
Speaker 1: day trade it today or even next week or even
Speaker 1: in February. But if you have a longer term horizon,
Speaker 1: there are some discounts for something that I don't think
Speaker 1: it's going to go on forever here. So, David, some
Speaker 1: folks are looking for value in this market. One of
Speaker 1: the places they look for is the energy space. We
Speaker 1: have some disappointing numbers out of Exxon and Chevron today.
Speaker 1: What's your view of the energy space? Well, so, UM,
Speaker 1: you know, I think most of the experts say that
Speaker 1: we are undergoing a shift at transition to cleaner fuels
Speaker 1: and renewable energy and so forth. But most of the
Speaker 1: experts say that's going to take decade to UM come
Speaker 1: into fruition. What we've seen recently energy prices back in
Speaker 1: two thousand and fourteen where hundreds of barrel, now they're
Speaker 1: coming down to about fifty UM. The best cure, quite frankly,
Speaker 1: for low commodity prices is low commodity prices, because who
Speaker 1: in the right mind would explore for further fuel UM
Speaker 1: given where the situation is. So, if you're a believer
Speaker 1: that things are cyclical and that sometimes a tough environment
Speaker 1: for an industry actually favors the biggest players on the
Speaker 1: block because they have can attract the best people, they
Speaker 1: have the lowest borrowing costs, most diversified operations. Then maybe
Speaker 1: this is the time to dip your toe into the
Speaker 1: water of some of the biggest players who which you
Speaker 1: have outstanding track records in our integrated across all phases
Speaker 1: of the industry, plus geographically well diversified. David, I know
Speaker 1: that one of your stock picks is Exxon, which would
Speaker 1: fall into that category. And I'm looking right now at
Speaker 1: Xson shares that are really underperformed. But at this point,
Speaker 1: and this Dave Wilson are Brick Socks editor pointed out
Speaker 1: that the dividend yield being paid out on Exxon shares
Speaker 1: now exceeds what you can get on US junk bonds.
Speaker 1: How much of this is a dividend play and how
Speaker 1: much is this an appreciation play? Well, I think it
Speaker 1: ultimately could be both, because obviously there are players in
Speaker 1: the market they're saying this dividend won't grow. In fact,
Speaker 1: it might be uh cut um. But I think that
Speaker 1: historically buying some of the biggest dividend players in the
Speaker 1: Dow has worked out well, that would be the dogs
Speaker 1: of the Dow theory. Plus, of course, we do know
Speaker 1: that Exxon is an industry giant, I think third largest
Speaker 1: revenues in the sp so you know there's a lot
Speaker 1: of way ways for them to cut costs. They announced
Speaker 1: earnings this morning, this stock is down significantly. Nevertheless, they
Speaker 1: did beat expectations in terms of the top line, and
Speaker 1: the bottom line relates to what animals were projecting. So again,
Speaker 1: the other thing, of course, is is it an exon
Speaker 1: specific problems in an industry problem where we've given that
Speaker 1: energy prices down this month alone, I think you'd give
Speaker 1: a pass to x on management and look at global
Speaker 1: macro economic conditions. David, thanks so much for joining us.
Speaker 1: We appreciate you stepping on the phone with us and
Speaker 1: give us your thoughts on the market. Here David Deet's
Speaker 1: president and chief investment strategists at Point View Wealth Management,
Speaker 1: calling on the phone from Lovely Downtown Summit, New Jersey.
Speaker 1: We appreciate a s thoughts. Looking at the SMP right here,
Speaker 1: hitting the lows of the day down forty nine points.
Speaker 1: I'll be one point five percent on the SMP that
Speaker 1: down down fourner and sixty six points, that's one point
Speaker 1: six percent decline and NASDAC down a hundred twenty two
Speaker 1: points one point three percent decline. So seeing some accelerating
Speaker 1: selling here as we close up the morning, David dates
Speaker 1: with some kind of a non consensus view here that
Speaker 1: with the w h o uh sounds the alarm, that's
Speaker 1: usually the trough for that's usually when you can start
Speaker 1: thinking about getting back in. Not what other people are saying.
Speaker 1: They're looking for some sort of halt in this exponential
Speaker 1: expansion of the coronavirus, which we really haven't seen it.
Speaker 1: Boil has been falling out of bed steadily as the
Speaker 1: coronavirus spreads throughout Asia and frankly throughout the world. Right now,
Speaker 1: looking at Crew traded on the night mix, trading at
Speaker 1: fifty since a barrel, the lowest in August two nineteen,
Speaker 1: what will it take for the prices to rise and
Speaker 1: for the fate of some of the weaker oil companies
Speaker 1: to improve? Joining us now, Regina may Our Global Energy
Speaker 1: had at KPMG Regina, can you just give us a
Speaker 1: first your your broad sense of the main driver behind
Speaker 1: the latest weakness in oil. So I think we're experiencing
Speaker 1: a really significant demand destruction event that's had a major impact,
Speaker 1: not just what you said. That's the lowest point since August.
Speaker 1: It's down almost twelve dollars from January six. The coronavirus
Speaker 1: was announced on January and we've seen almost half of
Speaker 1: that destruction since the virus was announced. So I think
Speaker 1: this is going to be very significant, and it's only escalating.
Speaker 1: So I think it's going to get worse before it
Speaker 1: even stabilizes, because we're going to see even more consumer
Speaker 1: and business activity both inside of China and inbound into
Speaker 1: China that all continue to have destructive effects on oil demand. So, Regina,
Speaker 1: when you talk to your clients, your energy clients, how
Speaker 1: are they kind of thinking about this as you again
Speaker 1: as you talked about demand from a demand equation? Are
Speaker 1: they taking this seriously, very seriously? But you know they're
Speaker 1: in it for the long term, so they can't overreact
Speaker 1: to these these uh, these weaker signals right now. We
Speaker 1: have seen in corporate results though that downstreaming chemicals earnings
Speaker 1: are significantly down and for Q one will have an
Speaker 1: even bigger impact. Those that have extensive ties to Asia
Speaker 1: will see even more demand destruction. Or or revenue decreases
Speaker 1: from what's happening in Asia. So definitely taking it seriously,
Speaker 1: but can't change their strategy given the long term nture
Speaker 1: of the overall process. So, given your incredible experience talking
Speaker 1: with companies of all sizes within the energy sector for
Speaker 1: decades and trying to figure out the next part of
Speaker 1: disruption and sort of how to get ahead of that,
Speaker 1: what's your main conversation today with some of these corporate executives. Well,
Speaker 1: this one, I would say, Lesa is a bit of
Speaker 1: a black swan. I mean, I don't think that. I
Speaker 1: think we were experiencing almost a mini renaissance in Houston
Speaker 1: for Q four when we saw independent producer stock prices
Speaker 1: go up um, and I think because the industry and
Speaker 1: the investor community felt like Number one, they were quite
Speaker 1: a good bargain. Number two, we felt like we'd reached
Speaker 1: a bit of a floor and commodity price right was
Speaker 1: w T I and the mid to high fifties and
Speaker 1: Brent in the mid sixties. And now look at where
Speaker 1: we are, literally three weeks after the January six high
Speaker 1: that we experienced. So I think it's um, this one
Speaker 1: wasn't foreseen, And I think We're going to have to
Speaker 1: figure out out what that is going to mean. Capital
Speaker 1: spending levels we're going up. You'll have seen permian production
Speaker 1: surged from some of the announcements that are coming out
Speaker 1: this weekend next and that excitement I think will die
Speaker 1: down given given what's happening, and it's a crisis for
Speaker 1: you know, overall the markets as well as the oil
Speaker 1: industry Regina. You raise a really interesting question implicit in
Speaker 1: your in your statement that this is a black swan,
Speaker 1: how resilient are the weakest players in the energy space
Speaker 1: to something like this black swan? In other words, are
Speaker 1: we going to see a rash of bankruptcies that are
Speaker 1: accelerated as a result of this. I think you're right.
Speaker 1: I don't think they're incredibly resilient, particularly the players that
Speaker 1: were hanging on by their fingernails. We've seen the smaller
Speaker 1: players are already being very challenged, and I do think
Speaker 1: we'll see more bankruptcies, restructuring calls on debt for the
Speaker 1: for the much much smaller marginal players. You've seen the
Speaker 1: larger players make pretty big announcements on significant write downs
Speaker 1: with gas positions. So if you're an investor and you're
Speaker 1: looking at the sector and you see a small player
Speaker 1: that's predominantly gas portfolio that would not be where I
Speaker 1: would place the pet in this market. So, Regina, that
Speaker 1: kind of calls into question, do you think we'll see
Speaker 1: some more consolidation in the oil patch? Um? You know
Speaker 1: a lot of your you have big clients, medium sized,
Speaker 1: smaller clients. Is the expectation that if it gets even
Speaker 1: tougher in the oil patch, that maybe some of the
Speaker 1: bigger companies will look to scoop up some of the
Speaker 1: weaker ones, the ones that maybe have a challenging capital structure.
Speaker 1: I believe. So, I do think there are going to
Speaker 1: be some bargains available. There are larger players the same
Speaker 1: midsize players that have really nice acreage portfolios UH and
Speaker 1: decent assets that are not operating as effectively as they
Speaker 1: can be. The market, the overall sector would be so
Speaker 1: much more improved if we could consolidate like a big
Speaker 1: one that we saw last year, and I think the
Speaker 1: market would benefit, The sector would benefit. Whether or not
Speaker 1: the bid ask spreads UM come together. That's been the
Speaker 1: big that's been the big hurdle. But if we were
Speaker 1: faced with bankruptcy and restructuring, then you don't have the
Speaker 1: sellers being in such a strong position to try to
Speaker 1: demand a higher price. Regina, what would it take when
Speaker 1: it comes to the spread of the coronavirus for oil
Speaker 1: prices to get a bottom or get a sense of
Speaker 1: the potential economic fallout. We have to be at a
Speaker 1: stage where we believe we've reached the tipping point. Right now,
Speaker 1: it feels like an exponential upward curve with cases and
Speaker 1: spread and fear until we feel like the world and
Speaker 1: China has got its arms around the virus is stemming
Speaker 1: the tide. People are going back to work, people are
Speaker 1: flying in and out again. That's when we'll see the
Speaker 1: floor and have it stabilized. That doesn't feel like it's
Speaker 1: close right now to me, but obviously I'm speculating, so
Speaker 1: I think that's what's causing a lot more of the
Speaker 1: fear is we don't know when that tipping point it
Speaker 1: would be achieved. You thank you so much for joining us.
Speaker 1: We really appreciate your commentary. Regina Mayor, Global Energy head
Speaker 1: for KPMG. And everyone's talking about the coronavirus and the
Speaker 1: risk off field that we're having in markets today in
Speaker 1: the US. But I want to go to another place,
Speaker 1: which is Amazon and the incredible surge that we've seen there.
Speaker 1: Apple's earnings came out, incredible earnings, even though the shares
Speaker 1: are down today a little bit on the coronavirus, leaving
Speaker 1: a question that Tom Keene raised this morning. I thought
Speaker 1: it was really salient, which is an investor who has
Speaker 1: been underweight some of these big tech names, what do
Speaker 1: they do now given the fact that you're getting earnings
Speaker 1: that beat so dramatically. And Chris Christopher Wolf joins US
Speaker 1: now chief investment Officer at First Republic Private Wealth Management
Speaker 1: with seventy four billion dollars of assets under management, normally
Speaker 1: based in San Francisco, but here with us in our
Speaker 1: interactive broker studios. And we'll get to the coronavirus issues,
Speaker 1: and we'll get to macro concerns. But when it comes
Speaker 1: to big tech, which has been really the driving force
Speaker 1: of a lot of the gains in the SMP and
Speaker 1: NASDAC over the past decade, where do people go now
Speaker 1: when they see that these earnings just keep coming. So
Speaker 1: I think there's three things. I do think you have
Speaker 1: to go there, meaning towards the technology space for a
Speaker 1: couple of reasons, one, we're in an age of hyper aggregation.
Speaker 1: Technology enables that kind of the reach that the Internet has, etcetera.
Speaker 1: You can buy I think anything you want almost on
Speaker 1: Amazon at this point. I mean you're basically stealing share.
Speaker 1: And that hyper aggregation function, driven by instantaneous everywhere communication,
Speaker 1: is one key piece of what technology provides and kind
Speaker 1: of why it's very hard to stop. Number two, you're
Speaker 1: in an era where kind of the public markets have
Speaker 1: been increasingly dominated by machines machine trading. They kind of
Speaker 1: simply follow rules. I'm greatly simplifying it, but if it
Speaker 1: was up yesterday or earnings beat or whatever, just by
Speaker 1: and I think you get that kind of rule following mentality,
Speaker 1: particularly is the market is starting to separate by signals
Speaker 1: with this sectors, with this big external influence called coronavirus,
Speaker 1: which I hope we get to. I think the last
Speaker 1: piece of the puzzle. I just want to throw a
Speaker 1: curveball because it's a question. It's on my mind, so
Speaker 1: I think you gotta go there. Anyway. Last piece of
Speaker 1: puzzle on the tech side is that it is the
Speaker 1: one place where there is growth. The thing that's scarce
Speaker 1: in this world is growth. So there's an old maximum
Speaker 1: in the equities and kind of more broadly markets as
Speaker 1: you buy what scarce growth is the scarce thing. There's
Speaker 1: a lot of cheap stuff as we can see, and
Speaker 1: energy and other parts of the market, but it's really
Speaker 1: hard to find true growth these days. And it's still
Speaker 1: in tech all right. So we're seeing a so often
Speaker 1: the SMP of a little more than one percent today,
Speaker 1: the Dow off one point three today, presumably on growing
Speaker 1: concerns about the coronavirus. Even given the today's so off,
Speaker 1: are you concerned at all that the markets maybe been
Speaker 1: a little too sanguine about the potential risk to economic
Speaker 1: growth coming from this virus coming out of China. I
Speaker 1: think the level of uncertainty around the policy response. So
Speaker 1: we've seen some of it, so water closings, for example,
Speaker 1: shutdown of flights. You've just seen some recent announcements about
Speaker 1: the airlines in the US cutting the flights. You know,
Speaker 1: the challenge error is two fold. It's not just the
Speaker 1: people traveling, it's the goods that move in the bellies
Speaker 1: of the plans, for example, and including when they're talking
Speaker 1: about shutting ports, moving lots of goods back and forth.
Speaker 1: So we haven't seen a lot of that just yet. Um,
Speaker 1: there's some good data, or at least some data historically
Speaker 1: that suggests that markets kind of tumble until we see
Speaker 1: a peak in the number of cases and the policy
Speaker 1: response gets really strong. At that point, there's some confidence
Speaker 1: that this is under control or in contained in some way.
Speaker 1: And I don't mean to be glib, but that's how
Speaker 1: financial markets tend to respond to things. So am I worried,
Speaker 1: not just yet. Number one, Yes, economy is a giant place.
Speaker 1: It's really hard to damage the battleship. Number two, we're
Speaker 1: pretty closed, you know, more or less we trade with ourselves.
Speaker 1: Only about six percent seven percent GDP is net basis
Speaker 1: at export import, and I'm greatly simplifying the numbers. I think.
Speaker 1: Number three, you know, we're in a place where, um,
Speaker 1: this has started in China, and some immediate actions have
Speaker 1: taken place. The World Health Organization actually praised China's efforts
Speaker 1: immediately and in some ways, uh, that may help limit
Speaker 1: the spread. So I think the overreaction here. Now back
Speaker 1: to my point and I'll stop on this has something
Speaker 1: to do with the machines. Things have been down a
Speaker 1: couple of days. You have an outside event a coronavirus,
Speaker 1: and hey, if it's down yester day, why not sell today?
Speaker 1: All right? Blame the machines that said I got to start.
Speaker 1: There's other things, but but you could say, you know,
Speaker 1: that's that's sort of what's driving the action here. If
Speaker 1: your thesis is right, though, and the US is an
Speaker 1: economy that can keep chugging along and is relatively immune
Speaker 1: to the scare that's weakening growth and expected to continue
Speaker 1: to weaken grow throughout Asia and beyond. Why is the
Speaker 1: Russell two thousand underperforming large caps? Why are we seeing
Speaker 1: a loss of two point four percent on the companies
Speaker 1: that are most leveraged to the U S economy while
Speaker 1: large multinational companies are outperforming. So I think there's two
Speaker 1: reasons for that. Um And and look, there's remains to
Speaker 1: be seen a lot about the coronavirus, and it's spread
Speaker 1: is not understood yet, and if it follows other patterns,
Speaker 1: it is coming here in the U S. And we
Speaker 1: do have to be thoughtful about it. But at least
Speaker 1: with respect to markets, two things matter a lot. One liquidity.
Speaker 1: There's a lot more in the big stocks than there
Speaker 1: isn't a little stocks. Um And to the financial position
Speaker 1: of many of these companies. So if you watch a
Speaker 1: lot of the data on the Russell two thousand, you
Speaker 1: know that the debt to eb DOT numbers are out
Speaker 1: of control. The debt burden and small company these days
Speaker 1: is four times what it is in the large companies. Financially,
Speaker 1: they are way more susceptible to just tiny changes in
Speaker 1: the revenue line. So even if we get you know,
Speaker 1: small effects in the US, they could be exaggerated by
Speaker 1: how much leverage is into the small cap space these days.
Speaker 1: So if I were thinking about the fundamentals and wanted quality,
Speaker 1: I'd want a better balance sheet, I'd want some way
Speaker 1: to manage um kind of subsidize the cost associated with
Speaker 1: all this. And I wouldn't want to have all that
Speaker 1: leverage if there were some risk to my top line.
Speaker 1: So I think that can tie back to why there's
Speaker 1: another performance. So what are your clients saying to you
Speaker 1: right now? Are they bringing up the coronavirus and what
Speaker 1: it means for global economic growth? Are they just saying,
Speaker 1: you know, I need to I need to be in
Speaker 1: this market. You know, we published a piece earlier this
Speaker 1: week and it's kind of tied to something we wrote
Speaker 1: the end of two thousand eighteen and carried through two
Speaker 1: thousand nineteen. It didn't look all that great because two
Speaker 1: thousand nineteen was up so much, but it said we're
Speaker 1: entering an era where it's time, given kind of all
Speaker 1: the dynamics that we've just talked about, to be more
Speaker 1: thoughtful about managing risk, diversify the portfolio is more, we're
Speaker 1: comfortable hold a little bit more cash um And what
Speaker 1: we tried to key off on our recent piece for
Speaker 1: this coronavirus is there's a lot of unknowns at this point.
Speaker 1: There may be a treating dip that we get out
Speaker 1: of this, but I think our view is that there's
Speaker 1: a lot of things related to the growth story that
Speaker 1: not only could coronavirus hit, but other things could hit
Speaker 1: that we want to be a little bit more cautious
Speaker 1: in this low, slow, central bank free money dominated world.
Speaker 1: What's your time frame of for investments? Typically we look
Speaker 1: at a minimum of two years. We're not really a
Speaker 1: trading house, you know. Most private clients, that's the folks
Speaker 1: that we manage money for, look over a longer time frame,
Speaker 1: although they are sensitive to the news of the day.
Speaker 1: All right, So if it's a two year time horizon,
Speaker 1: When does the coronavirus disruption end up becoming a trading
Speaker 1: opportunity on some level with that longer term horizon in mind.
Speaker 1: So I really hate to refer to old maximums, but
Speaker 1: sometimes they're very valuable to anchor the context. And um
Speaker 1: market stop panicking when policymakers start panicking is one that
Speaker 1: kind of goes around. And I don't know that we've
Speaker 1: seen full blown policy panic, like shut everything down, getting mad.
Speaker 1: I think you're gonna go right back to the places
Speaker 1: that are scarce, So you're gonna go right back to
Speaker 1: the technology, right back to the growth stories that I've
Speaker 1: come under pressure with this, And I think you know,
Speaker 1: tech is actually held up pretty well here today. If
Speaker 1: you look at the numbers, the growth stories that were
Speaker 1: requiring China, Japan and basically Asia to grow strongly are
Speaker 1: all under the most arrest. They probably have the most
Speaker 1: rebound potential all the longer term. I don't think we're
Speaker 1: as as positive on the hyper aggregation stories, I mean
Speaker 1: on those as we are in hyper aggregation. Christopher Wolf,
Speaker 1: thank you so much for joining us to really appreciate
Speaker 1: your commentary. Christ Wolf is chief Investment officer for First
Speaker 1: Republic Private Wealth Management based in San Francisco, but joining
Speaker 1: us here in our Bloomberg Interactive Broker Studio, would mention
Speaker 1: to seek, I mean we're off, you know, more than
Speaker 1: one percent here on the SMP. Is this a buy
Speaker 1: on the dip? Again, Lisa, this isn't a dip, Okay,
Speaker 1: I mean this is not this is not this is
Speaker 1: not a dip. This is this is this is normal
Speaker 1: market action, right. I mean this is not, uh, something
Speaker 1: where you can look at it and say, wow, this
Speaker 1: is just absolute fear. I mean the doubt you're seeing
Speaker 1: more of declare line and the SMP. Sure it's down
Speaker 1: more than so we'll bring that up with Da Wilson coming.
Speaker 1: You better believe we're gonna bring up with no But
Speaker 1: but to me it raises it raises a really interesting
Speaker 1: question I think Tom Keene raises this morning, and I
Speaker 1: thought it was really important, which is how money, how
Speaker 1: much of the gains are gone right, and how much
Speaker 1: can you sort of believe in the growth stories if
Speaker 1: the global growth isn't going to happen. And I think
Speaker 1: that that's sort of a bigger question that remains to
Speaker 1: be seen as the coronavirus plays itself out and people
Speaker 1: look at the fundamentals. My other favorite person always speak
Speaker 1: with his Karen Eveil Heart, and she joins us here
Speaker 1: in our interactive Broger Studios, a senior industrials analysts, love
Speaker 1: having her perspective with respect to Caterpillar, in particular coming
Speaker 1: out today with weaker than expected projections that shares now
Speaker 1: down nine point two per cent on the year, including
Speaker 1: reinvested dividends. Karen, how much of the weakness that they
Speaker 1: are for telling has to do with the coronavirus versus
Speaker 1: just a general slowdown that we're seeing in the industrial
Speaker 1: sector that continues. I think was just another shoe. Um
Speaker 1: Cat has about three to sales in China, so that
Speaker 1: will that's actually doing okay now, but they're they're concerned
Speaker 1: about that. Uh, it's just global growth is slow everywhere
Speaker 1: and it's not coming back. And I think it's really
Speaker 1: interesting a that they came out so below consensus in
Speaker 1: EPs outlook, and also the range is so wide they
Speaker 1: don't know. They said it's reflecting uncertainty. They had a
Speaker 1: hundred dollar fifty range from top end to low end
Speaker 1: of of estimate, and that's really that's wide. So they
Speaker 1: got exposure to the energy businesses, right, So how's that
Speaker 1: that's got to be challenged? Um, well, their energy and
Speaker 1: t businesses, Energy and transportation, the piece of it that
Speaker 1: is oil service is doing poorly, but they have other
Speaker 1: stuff that's downstream and midstream that's holding up okay, And
Speaker 1: and the transportation business is okay, So that's only moderately down.
Speaker 1: Mining is falling apart because industrial commodities and that had
Speaker 1: had a mini recovery and now that's backed down. And
Speaker 1: construction is the incremental worst there, the North American construction,
Speaker 1: they're much more worth were concerned about. I want to
Speaker 1: pick up on that though, And this is sort of
Speaker 1: one of the fundamental questions that I think a lot
Speaker 1: of people will be passing through. How much the weakness
Speaker 1: that we're seeing, particularly in industrials and I'm looking at industrials,
Speaker 1: medals absolutely getting pummeled over on the London Medals Exchange.
Speaker 1: How much of this is due to the coronavirus. How
Speaker 1: much is due to what we've seen, which is just
Speaker 1: a broader slowdown, particularly with this with this sector, I think,
Speaker 1: but happening at least this week. I think there is
Speaker 1: panic about the virus. I mean, because if you sit back,
Speaker 1: you can get yourself pretty worked up. I mean, if
Speaker 1: China stops production just because that people can't go to
Speaker 1: the plant, that could be a big number for a
Speaker 1: lot of these a lot of these companies, I mean
Speaker 1: the ext I mean, and and then they're all lowering expectations.
Speaker 1: Honeywell did very wide range on their EPs two. They
Speaker 1: never do that. People are concerned about. That's like the
Speaker 1: incremental thing that they can't put their arms around yet,
Speaker 1: So they got to make a big wide range. How
Speaker 1: about trade? We got the Phase one deal. Are the
Speaker 1: c e O s and that you talked to in
Speaker 1: Industrial America are they still saying this is still an
Speaker 1: issue for us? Yeah? I mean they I don't think
Speaker 1: they make much of that. They're happy that it's a
Speaker 1: step forward, that it's not really going to change the
Speaker 1: trend line in any big way. Um, and I think
Speaker 1: they're more concerned about the just the global growth outlook.
Speaker 1: Any bright spots, uh Well, aviation was the bright spot
Speaker 1: and now and you know we had Max Okay, nobody
Speaker 1: people weren't completely worried about that because that's going to
Speaker 1: come back. But now you've got the virus, you know,
Speaker 1: and honey Well said they're already seeing it in aftermarket
Speaker 1: parts that, um, the volume of travel is slowing, and
Speaker 1: that's how they make money. That's how they make money. UM,
Speaker 1: airline airline traffic slows, they sell as parts. You know.
Speaker 1: It's so interesting. Paul I was looking at how Chinese
Speaker 1: travelers really account for such a huge proportion of overall travel,
Speaker 1: of overhaul luxury spending, and just how much of a
Speaker 1: disproportionate hit to these sectors. Uh, there has been because
Speaker 1: of what's been going on. Just dramatic. Yeah, I mean
Speaker 1: they move the needle on everything and you know, just
Speaker 1: you know, incremental. A few stay home and but it's
Speaker 1: the flights are already slowing so dramatically that you know.
Speaker 1: The good news about the max slowing was, oh, we
Speaker 1: we're flying older plains. That's good for parts right. Well
Speaker 1: now if that one's gone, so the bright spot is hard.
Speaker 1: Here's the bright spot there. They're they're managed, managing, they're
Speaker 1: executing very well, like like you know, in a very
Speaker 1: bad situation, cats in decremental margins were very good. Um,
Speaker 1: you know, cut back on the expense and they have
Speaker 1: and they didn't bring the costs back and they have
Speaker 1: more flexible cost structures. That's the good news. How's how's
Speaker 1: the American farmer doing? Uh? Not not well at all, um,
Speaker 1: But they're gonna China. One thing China is going to do,
Speaker 1: when they can do it rather quickly, is buy more soybeans.
Speaker 1: So it'll go from a bad, bad situation to just
Speaker 1: a crappy situation. But it's not term okay. Karen Uberhart,
Speaker 1: thanks so much for joining us. We always like chatting
Speaker 1: with you to get a sense of what's going on
Speaker 1: in industrial America. Karen's the senior Industrials analyst for Bloomberg Intelligence,
Speaker 1: joining us here in our Bloomberg Interactive Broker Studio. Disappointing
Speaker 1: numbers again out of Caterpillar today. The stock down one
Speaker 1: point five percent today and is Lisa mentioned that about
Speaker 1: nine point eight percent for the year up just slate
Speaker 1: if you look at it on a trailing twelve months
Speaker 1: up about three percent, really trailing the market. Here's concerns
Speaker 1: about end user demand and the company was forecasting in
Speaker 1: their press released end user demands seen to be down
Speaker 1: four to nine percent this year for Caterpillar. So that
Speaker 1: gives you a sense of some of the demand or
Speaker 1: the lack of demand from industrials across the world, and
Speaker 1: that is clearly a global company is Caterpillar. Thanks for
Speaker 1: listening to the Bloomberg P and L podcast. You can
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
Speaker 1: pt Sweeney. I'm Lisa abramoy It's I'm on Twitter at
Speaker 1: Lisa A. Bram woyds one. Before the podcast, you can
Speaker 1: always catch us worldwide on Bloomberg Radio.