Latest / Bloomberg Intelligence / Axiom's Johnson Sees Oil Price Lower, More Supply Coming(Audio)

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Axiom's Johnson Sees Oil Price Lower, More Supply Coming(Audio) · Bloomberg Intelligence

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  Speaker 1: I'm Katherine Cowdery. You're listening to Taking Stock with Kathleen
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  Speaker 1: Fox on Bloomberg Radio. Oil oil prices are up after
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  Speaker 1: the ninth weekly U S Crewed draw down. Here to
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  Speaker 1: tell us more about oil, commodities and medals is Gordon Johnson.
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  Speaker 1: He is managing director and head of Alternative Energy Research
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  Speaker 1: at Axiom Capital Management. Gordon, thank you very much for
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  Speaker 1: being with us. Hey, thanks for having me. All right,
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  Speaker 1: so go ahead, Let's start off with oil prices. And
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  Speaker 1: why do you think we're seeing this rally at least
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  Speaker 1: a modest rally and oil prices, but also the rally
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  Speaker 1: and commodity based stocks. Yeah, so, I think the rally
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  Speaker 1: and commodity based stocks has been driven mainly by expectations
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  Speaker 1: of stimulus um clearly after the Brexit vote, unexpected Brexit
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  Speaker 1: vote UM, A number of central banks came out and
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  Speaker 1: said definitively that they were going to UM stimulate UM
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  Speaker 1: it's needed. And then you have China and Japan for example,
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  Speaker 1: China and Japan, but more specifically than you had the
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  Speaker 1: big win in Japan UM and they're a central bank
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  Speaker 1: and they're essentially their their leader came out and said
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  Speaker 1: that he was going to drop helicopter money. So it's
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  Speaker 1: we don't think it's being driven by fundamentals. We think
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  Speaker 1: it's being driven by expectations on stimulus. So we think
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  Speaker 1: the rallies are very weak with respect to UH substance.
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  Speaker 1: Now you've done a little research that explains that about
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  Speaker 1: a hundred billion dollars in helicopter stimulus money from Japan
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  Speaker 1: would equate it just two point four per of GDP
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  Speaker 1: for the country. That's correct, So that that's a that's
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  Speaker 1: a good point. So so the point is people here
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  Speaker 1: helicopter money in the robot traders UM and the machines
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  Speaker 1: see helicopter money, or you know that it's put in
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  Speaker 1: the headlines and sucks go crazy. When you do the map,
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  Speaker 1: it's only two point four percent of Japan's GDP. Javan
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  Speaker 1: has a debt to GDP ratio roughly two. Keep in mind,
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  Speaker 1: trying to did about a trillion dollars in new credit
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  Speaker 1: in the first quarter. That was a record amount. That
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  Speaker 1: was essentially stimulus. And they have a that the GDP
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  Speaker 1: similar to Japan's a bit higher, and a trillion dollars,
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  Speaker 1: not a hundred billion, but a trillion dollars only brought
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  Speaker 1: them two months of good data. The data has subsequently
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  Speaker 1: turned lower. So the point is a hundred billion dollars
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  Speaker 1: is like trying to kill an elephant with the fly swatter.
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  Speaker 1: We think it means nothing fundamentally, but it's again, it's
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  Speaker 1: it's it's driving headlines and and invigorating animal spirits. All right, Well,
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  Speaker 1: trying to kill an elephant with a fly swatter is
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  Speaker 1: a fool's errands. About the United States, and will the
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  Speaker 1: United States have to embark on some kind of fiscal
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  Speaker 1: stimulus program, I don't think so. I mean I think
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  Speaker 1: the United States, um, you know, if you think about it, um,
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  Speaker 1: unemployment is below five percent, and there's already discussions whether
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  Speaker 1: there's any slack left in the economy. UM. So I
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  Speaker 1: think another major stimulus in the United States is highly unlikely. Um.
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  Speaker 1: And just really quick on oil, I think the real
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  Speaker 1: issue I have with oil and why we think over
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  Speaker 1: the near term oil prices are gonna fall is because
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  Speaker 1: our worries lie with the products gasoline and diesel UM.
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  Speaker 1: And if you look at the products, they're stuff to
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  Speaker 1: the gills across the world, the US, EU and and
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  Speaker 1: also Asia. UM. So you know that is essentially demand
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  Speaker 1: for oil. And then from a supply perspective, we think
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  Speaker 1: OPEC is going to increase supply UM. So we just
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  Speaker 1: think from a supply demand perspective, we think supply is
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  Speaker 1: gonna overtake demand for oil again in the fourth quarter,
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  Speaker 1: and you get some you're gonna get some pressure there,
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  Speaker 1: all right. I was taking a look at some of
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  Speaker 1: the transports sectors. For example, railroad shipments are falling at
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  Speaker 1: the fastest rate I believe since like two thousand and
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  Speaker 1: nine profits are down five straight quarters. How does that
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  Speaker 1: play into your strategy? So look, I mean so again
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  Speaker 1: people are talking about strong demand in the US UM.
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  Speaker 1: But again and but again this is more headline stuff.
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  Speaker 1: If you look at the actual data points, so specifically
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  Speaker 1: in the still sector, four key things we look at.
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  Speaker 1: We looked at UM car cells measured by STAR, which
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  Speaker 1: is total UM you know, annualized car cells that's rolling
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  Speaker 1: over now. Um you can pull that up Boo Bloomberg
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  Speaker 1: s a r UM. We look at m s c
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  Speaker 1: I data, so that's U S Service Center data in
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  Speaker 1: the still space. And if you look at that data
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  Speaker 1: it just came out yesterday, it was bad. Um. Uh.
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  Speaker 1: We look at rick counts and and clearly rick counts
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  Speaker 1: are off the lows. But if you look at the chart,
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  Speaker 1: we're still near record loads. So still demand in that
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  Speaker 1: aspect is bad. And then we look at the architecture
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  Speaker 1: billion decks for nonready and that's good. So three out
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  Speaker 1: of the four indicators are bad. If you look at
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  Speaker 1: things like durable cells, durable goods orders, UM holds, elimentories
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  Speaker 1: to cells, import prices, export prices, all these things are
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  Speaker 1: are basically pointing to recession in the US. So look,
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  Speaker 1: we have a major company reporting our names at four o'clock.
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  Speaker 1: United Rental is one of the companies we cover with
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  Speaker 1: the cell rating. We think the numbers are gonna be bad. Uh,
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  Speaker 1: when when we think the U S UM overall the
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  Speaker 1: US is still o marred in UM. You know, economic
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  Speaker 1: economic weakness. So we think that despite the strengthen the stocks,
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  Speaker 1: we think fundamentals are not good and we think that's
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  Speaker 1: gonna play out as earnings come out. You just want
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  Speaker 1: to follow up on your comments having to do with steel.
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  Speaker 1: I know you've been following the industry for a while.
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  Speaker 1: What about the imports of steel into the United States? Yeah,
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  Speaker 1: so it's interesting if you look at it. Imports are
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  Speaker 1: spiking up right now, and nobody's talking about this. And
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  Speaker 1: keep in mind, so what happened is still prices in
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  Speaker 1: the US spiked up, not because of demand, but because
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  Speaker 1: of protectionist measures the U s U Commerce. Essentially, the
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  Speaker 1: US government put very aggressive tariffs on a number of
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  Speaker 1: imports of still from a number of different countries, and
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  Speaker 1: that caused prices to spike higher. So if you look
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  Speaker 1: at the spread of US prices to international prices via Europe, China, Turkey,
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  Speaker 1: or whatever, US prices are near record premiums to international prices.
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  Speaker 1: So so what what would you expect? You expect more imports,
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  Speaker 1: and you're starting to see that in the data. Imports
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  Speaker 1: are now spiking higher, but still the stocks continue to
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  Speaker 1: run higher. In fact, just yesterday, still dynamics came out.
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  Speaker 1: Everybody expected them to talk very positively about que the
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  Speaker 1: second half last year and their two que print. They
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  Speaker 1: said the second half is gonna be great this year.
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  Speaker 1: They're saying they see pressure in the second half. Despite
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  Speaker 1: that fact. You know, the stock UM has you know,
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  Speaker 1: over the past probably three months, is up nearly so
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  Speaker 1: again we see some fundamental week that's coming in the
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  Speaker 1: second half, and I don't think investors are a position
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  Speaker 1: according weeks. Well, just to follow up on what you're
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  Speaker 1: talking about with Steel Dynamics st l D, the shares
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  Speaker 1: are down one and a half percent today, but combine
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  Speaker 1: that with yes Hayes four decline and you've got pressure
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  Speaker 1: on a Steel Dynamics. Tell me about the link between
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  Speaker 1: money printing perhaps by central banks and commodity prices. Yeah, so,
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  Speaker 1: um so yeah. I think the link between central banks
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  Speaker 1: and commodity prices is um again sentiment driven. So but
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  Speaker 1: the thought is, think about this, if if every single
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  Speaker 1: central brank in the world does, indeed UM drop helicopter money,
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  Speaker 1: and they do it in a substantial way. It's not
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  Speaker 1: a hundred billion, let's say it's four trillion UM. Essentially
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  Speaker 1: you're putting money UM in the pockets of people, but
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  Speaker 1: also you're you're directing money specifically at infrastructure projects, buildings, etcetera.
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  Speaker 1: That would create UM, that would create, as we saw
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  Speaker 1: in China in two thousand and eight and nine, demand
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  Speaker 1: for still demand for UM a number of different commodities,
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  Speaker 1: and US support all of these different um you know,
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  Speaker 1: commodity stocks. However, if you look at what people are
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  Speaker 1: actually saying when I say people specifically, if you look
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  Speaker 1: at what Japan is saying, if you look at the
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  Speaker 1: you know, the backdrop of the US, clearly it looks
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  Speaker 1: like we're not going to get a big stimulus package.
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  Speaker 1: I don't think you have support in Congress, even if
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  Speaker 1: the President wanted to do that. Um Uh. It's just
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  Speaker 1: not matching up with the expectations that people have. And
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  Speaker 1: again we think it's gonna play out in earnings. Um
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  Speaker 1: And if you look at the fact that the Chinese,
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  Speaker 1: you want the Chinese currency, they've devalued their currencies to
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  Speaker 1: the lowest level in nearly a decade. Um Uh. What
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  Speaker 1: that means is that they're they're essentially exporting their deflation
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  Speaker 1: to the rest of the world. That is very scary
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  Speaker 1: because if China is exporting it's deflation to the rest
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  Speaker 1: of the world. That's very negative for commodities, not positive.
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  Speaker 1: And right now people just aren't looking at a lot
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  Speaker 1: of these dynamics. So, Gordon Johnson, what are you recommending
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  Speaker 1: that people do with their money right now? Uh? You
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  Speaker 1: know the old adage bylow sell high. I would argue,
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  Speaker 1: we're pretty high right now. In fact, were at record
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  Speaker 1: highs and the fundamentals don't match up. Um. The last
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  Speaker 1: few times we're at you know, um uh, you know,
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  Speaker 1: record highs, there were fundamental factors to support it, right.
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  Speaker 1: You know, during the tech bubble, at least people thought
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  Speaker 1: that these companies were gonna grow at you know, astronomical levels. Um.
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  Speaker 1: During the housing bubble, at least people thought that, you know,
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  Speaker 1: home prices were going to continue to go higher and
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  Speaker 1: that was going to cause economic growth. What do people
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  Speaker 1: think now, why are we at record levels? We're at
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  Speaker 1: record levels because people are putting their bets that, hey,
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  Speaker 1: stocks are going up so they can still continue to
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  Speaker 1: go higher, and the federal you know, the central banks
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  Speaker 1: are going to support us. But if you ask people
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  Speaker 1: how they feel about fundamentals and how they feel about economies,
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  Speaker 1: they don't feel so positive. So I think now is
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  Speaker 1: the time to sell. Thanks very much, Gordon Johnson, Managing
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  Speaker 1: Director ahead of Alternative Energy Research at Axiom Capital Management.
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  Speaker 1: This is taking Stock. I'm pim Fox for going to
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