Latest / Bloomberg Intelligence / Weak Oil Demand May Push Price Back Near $30: Schork

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Weak Oil Demand May Push Price Back Near $30: Schork · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Swiney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
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Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com find I'm looking at the
0:21
Speaker 1: chart of w t I crude here looking back. Just
0:23
Speaker 1: since during the month of September, uh w t I
0:27
Speaker 1: has gone from about forty three dollars a barrel down
0:30
Speaker 1: to where we are today at thirty seven sixty five barrel,
0:33
Speaker 1: so quite a move down. When we talk oil, we
0:36
Speaker 1: talked supply models, we talked demand models, and when we
0:39
Speaker 1: do that, there's no one better to chat with than
0:41
Speaker 1: Stephen Short, President of the Short Group. Steven, thanks so
0:44
Speaker 1: much for joining us here. Again, this is a commodity
0:47
Speaker 1: that had been trading in north of forty dollars a
0:49
Speaker 1: barrel pretty consistently. Now we pulled back to under thirty eight.
0:52
Speaker 1: What's going on in the global oil market? We have
0:55
Speaker 1: to keep in mind all commodity markets trade in seasonal blocks,
0:59
Speaker 1: so of course back in the spring we had that
1:01
Speaker 1: that debacle with oil prices going negative. Then we snapped
1:05
Speaker 1: back and we stayed in that forty low forty mid
1:08
Speaker 1: forty dollar range for the entire summer. Now, the problem
1:12
Speaker 1: was the summer is your peak demand season for oil
1:15
Speaker 1: for gasoline, and on that snap back from the debacle,
1:19
Speaker 1: we only got as high as to where we were
1:22
Speaker 1: right before prices tanked, so we couldn't get much higher
1:26
Speaker 1: and we stayed in a very tight range. We demand
1:29
Speaker 1: historically is at its highest, but of course this is
1:33
Speaker 1: not a normal year. Demand for crude oil average two
1:36
Speaker 1: point five to two point seven million barrels a day
1:39
Speaker 1: below normal. Now that we have the Labor Day holiday,
1:43
Speaker 1: it's September, we now go into that next seasonal block.
1:46
Speaker 1: We're going from the peak demand season to the negative
1:49
Speaker 1: of the demand season. So over the next two months,
1:53
Speaker 1: as refineries go into their maintenance season they buy fewer barrels,
1:57
Speaker 1: we'll see demand dropped by an additional nine hundred thousands
2:00
Speaker 1: to a million barrels a day. So it's clearly a
2:03
Speaker 1: demand story right now. The US producer has done a
2:07
Speaker 1: great job taking two million barrels a day of production
2:10
Speaker 1: out of the market. But as I said before, it's
2:13
Speaker 1: not good enough because demand is still greater than two
2:17
Speaker 1: million barrels a day. So the producer has done a
2:19
Speaker 1: great job, but they're gonna have to continue. And it's
2:22
Speaker 1: all about the demand right now, and we're going into
2:24
Speaker 1: the weakest demand part of the year. How in the
2:28
Speaker 1: longer run does China impact things? China we know it
2:32
Speaker 1: wants to increase it's reserves of crude beginning in one
2:36
Speaker 1: does that impact US producers at all? Absolutely? The US
2:40
Speaker 1: now is of course a virgin in UH exporter of
2:44
Speaker 1: crude oil, and in fact, since last October, five out
2:48
Speaker 1: of every nine weeks, the US has been a net
2:50
Speaker 1: exporter that is, petroleum products, which is not news. Now
2:54
Speaker 1: States has been a net export of petroleum products guestline
2:57
Speaker 1: diesel for a number of years. Now what has chain
3:00
Speaker 1: change days over the year. We're now an exporter of
3:02
Speaker 1: crude oil. So five out of the nine weeks we
3:05
Speaker 1: have more oil going out of the Nited States than
3:08
Speaker 1: coming in. And of course with China, a lot of
3:11
Speaker 1: that oil is destined for those markets. Oil at these
3:14
Speaker 1: levels are is competitive for the Chinese consumer. So that's
3:18
Speaker 1: certainly when we transition back into the demand season. We'll
3:22
Speaker 1: see a peak later in this year as we get
3:24
Speaker 1: into the holidays, then we'll go into another decline in
3:28
Speaker 1: demand through the first quarter, and then we look ahead
3:31
Speaker 1: to the winter and demand picks up again. So clearly,
3:34
Speaker 1: out in the long run, China certainly is a significant
3:37
Speaker 1: force the supportive of US energy production. Steven, aside from
3:42
Speaker 1: the seasonal qualities or variabilities, is there a sense do
3:47
Speaker 1: you have a sense that demand for oil post pandemic
3:50
Speaker 1: will in fact be structurally lower. Yes, absolutely, I think
3:54
Speaker 1: this is the way we've been going in a number
3:56
Speaker 1: of years. The oil market is clearly a a twilight
3:59
Speaker 1: in history as we make greater uh stribes for technology,
4:05
Speaker 1: electric hybrid so forth, battery storage. Uh. Clearly, this is
4:09
Speaker 1: the market was moving there naturally, especially when you look
4:13
Speaker 1: at like I'm a dinosaur. I'm in my fifties, but
4:16
Speaker 1: my children, all of our children, UH that they want
4:19
Speaker 1: they're they're making the push. That's where your next market
4:22
Speaker 1: segment is for the next generation. So clearly we were
4:25
Speaker 1: already moving in that direction, and I think what we've
4:28
Speaker 1: seen now in the pandemic, I think that will even
4:32
Speaker 1: further it along at a quicker pace Stephen. How many
4:35
Speaker 1: more bankruptcies are we going to see or what kind
4:37
Speaker 1: of consolidation are we going to see before the pandemic
4:40
Speaker 1: is over. Absolutely so. When we had our original downturn
4:44
Speaker 1: in oil prices and then followed again earlier this year,
4:49
Speaker 1: all the concern was for the smaller shell producer. But
4:52
Speaker 1: now we're starting to see some of the big boys
4:55
Speaker 1: in the room. They're struggling. Uh you know the latest
4:59
Speaker 1: news being x on are they are they not going
5:01
Speaker 1: to cut the dividend? How many employees are they going
5:04
Speaker 1: to lay off? Now? I'm not saying the big guys
5:06
Speaker 1: are going going down the tubes, but certainly the smaller producer.
5:11
Speaker 1: I think we've we've we've seen the bankruptcy is already,
5:14
Speaker 1: We're seeing consolidation, and as we take in I'm fearful
5:18
Speaker 1: we take another leg down during this the nature of demand.
5:22
Speaker 1: Over the next two months, we see oil back into
5:24
Speaker 1: the mid to low thirties, potentially back into the twenties,
5:27
Speaker 1: and certainly that's going to hasten another I think round
5:31
Speaker 1: of consolidation in this industry. And of course we continue
5:36
Speaker 1: to get inventory reports, a couple of them per week,
5:39
Speaker 1: so we will keep a very very close eye on
5:41
Speaker 1: the oil prices right now still in New York below
5:44
Speaker 1: forty a barrel. Or thanks very much to Stephen Shork
5:47
Speaker 1: coming to us all the way from Villanova, Pennsylvania. Or
5:50
Speaker 1: is thrilled to have the editor of the short report on.
5:55
Speaker 1: So it appears that some employees that JP Morgan Chase
5:58
Speaker 1: and may have had on some very naughty thing. It's
6:01
Speaker 1: really quite a disturbing story. And Michelle Davison's freetar and
6:03
Speaker 1: not a rag and investigated and found that JP Morgan
6:06
Speaker 1: found some of its employees and probably applied for and
6:09
Speaker 1: received COVID relief money that was intended for legitimate US businesses. So,
6:15
Speaker 1: Michelle Davis, welcome and thanks for a phenomenal story. Please
6:19
Speaker 1: give us some of the details. Yeah. So JP Morgan
6:24
Speaker 1: earlier this week surprised a lot of folks when they
6:27
Speaker 1: spent out a memo to all two d fifty six
6:29
Speaker 1: thousand of their workers saying that they had found instances
6:33
Speaker 1: in which customers had misused government relief programs. And they
6:36
Speaker 1: said that they were probing employees involvement in that. And
6:39
Speaker 1: this memo earlier in the week didn't satisfy exactly what
6:42
Speaker 1: employees had done. But a store is confirmed to us
6:45
Speaker 1: wait yesterday that JP Morgan found that employees had some
6:49
Speaker 1: of the employees had improperly applied for and received funds
6:53
Speaker 1: as part of the Economic Injury Disafter Loan Program or
6:57
Speaker 1: the ideal for short. That program is different from the
7:00
Speaker 1: p p P program that has gotten a lot more
7:03
Speaker 1: press coverage. UM you know the Small Business Administration's program
7:07
Speaker 1: that UH provided forgivable loans to businesses through the e
7:11
Speaker 1: I d L program, Businesses could basically get grants of
7:14
Speaker 1: one dollar to ten thousand dollars um as long as
7:17
Speaker 1: they applied directly through the s b A. And with
7:21
Speaker 1: this program, UH, companies didn't have to apply through banks.
7:26
Speaker 1: The money was just dis first directly to the applicants.
7:28
Speaker 1: The only requirement was that they had a bank account.
7:30
Speaker 1: And so what we found was that JP Morgan discovered
7:34
Speaker 1: this fraud because it turns up that some of their
7:36
Speaker 1: employees had fraudulently received this money and it had been
7:40
Speaker 1: deposited into their checking accounts, into their personal JP Morgan
7:44
Speaker 1: checking accounts, and so JP Morgan's discovered it because they
7:48
Speaker 1: were on the alert to look out for fraud in
7:50
Speaker 1: this program. These people have now been let go. But
7:54
Speaker 1: we understand that JP Morgan has found a ton of
7:56
Speaker 1: fraud among its customer base across UH all of the
8:00
Speaker 1: government relief programs that were ruled out because of COVID,
8:05
Speaker 1: not only to PPP but also the ideals as we
8:07
Speaker 1: were just talking about, and also through unemployment benefit some
8:11
Speaker 1: shows already. Are these just random employees within the sprawling
8:14
Speaker 1: JPMorgan complex or is there some kind of systematic issue here.
8:19
Speaker 1: So what we understand is that the employees that participated
8:24
Speaker 1: in this, we're not acting as agents of the bank.
8:27
Speaker 1: It's it's not like they were, you know, people in
8:30
Speaker 1: charge of applying of approving p PP loans and you
8:33
Speaker 1: know they knowingly allowed fraud to happen. This seems like
8:37
Speaker 1: employees that we're just randomly scattered across the bank that
8:41
Speaker 1: saw an opportunity to get money basically free money out
8:45
Speaker 1: of the I d L program and you know, applied
8:48
Speaker 1: for and received this money. Um, we also understand that
8:52
Speaker 1: of the fraud JP Morgan has found so far, and
8:56
Speaker 1: they're they're still working with authorities right now to monitor
8:59
Speaker 1: check the accounts, just you know, to see if there's
9:01
Speaker 1: any suspicious behavior, suspicious amounts of money hitting people's checking
9:05
Speaker 1: accounts or or you know, being used to purchase Lamborghinis
9:09
Speaker 1: or what have you. Um, it's our understanding that all
9:11
Speaker 1: of that that they're looking at right now, of that,
9:14
Speaker 1: only a small percentage has been tied back to employees. Right.
9:19
Speaker 1: In the memo sent out to staff on Tuesday, Javie
9:22
Speaker 1: Morgan said it identified conduct by customers that didn't make
9:25
Speaker 1: different sils and may even believe illegal, and that some
9:27
Speaker 1: employees had fallen shorths on ethical standards to However, for
9:30
Speaker 1: this story, a spokeswoman declined to comment. Do we know
9:33
Speaker 1: roughly how many actual employees took the ideal funds? Michelle?
9:38
Speaker 1: Do any idea whether this is just a small number
9:41
Speaker 1: that you know, may have taken a thousand dollars or
9:44
Speaker 1: two thousand dollars and will be taken care of immediately
9:48
Speaker 1: when they're identified, I'm sure by Japan Morgan, or if
9:51
Speaker 1: it's if it's actually a lot more widespread than that.
9:55
Speaker 1: At this point, we don't know. We know that it's several, um,
10:00
Speaker 1: but that's as much as we know. Uh. The one
10:04
Speaker 1: right spot is that the e I d L program,
10:08
Speaker 1: which seems to have been the most heavily abused um
10:12
Speaker 1: in terms of fraud. Uh the money ran, It ran
10:15
Speaker 1: out of money in the middle of July. So it
10:18
Speaker 1: doesn't seem like, you know, there's a chance that more
10:21
Speaker 1: fraud is going to be committed. It's just there might
10:24
Speaker 1: be more fraud detected at this point. So Muchel, you
10:28
Speaker 1: mentioned that, are you reported that the bank had fired
10:31
Speaker 1: these employees. Is what's been the overall response from the
10:34
Speaker 1: institution here. Uh So, my understanding is that JT. Morrigan,
10:42
Speaker 1: in disclosing to employees all two d fifty six global
10:46
Speaker 1: two hundred fifty six thousand global employees and disclosing this,
10:49
Speaker 1: they went against the grain. You know, you don't normally
10:52
Speaker 1: see a bank telling people, you know, are some of
10:56
Speaker 1: our employees may have done illegal things and a lot
10:58
Speaker 1: of our customers have done illegal things. And what we
11:00
Speaker 1: understand is that the bank's leaders kind of made a
11:05
Speaker 1: calculation where they thought, Okay, this could hit our reputation
11:08
Speaker 1: by disclosing this. But the view was that it made
11:11
Speaker 1: more sense to tell employees to be alert for fraud
11:15
Speaker 1: so that they could help catch it, um than just
11:19
Speaker 1: staying silent. So that is that explains some of why
11:22
Speaker 1: they did this. Yeah, so so according to your source,
11:26
Speaker 1: the bank does you know, has already fired people that
11:31
Speaker 1: it believes improperly tap the money, correct, Michelle, that's correct. Yeah,
11:36
Speaker 1: I understand that there's still they're they're still investigating, so
11:40
Speaker 1: there could be more people fired, but at this point,
11:43
Speaker 1: the people that have been confirmed to have committed fraud,
11:45
Speaker 1: they have been let go. Michelle, thank you so much
11:47
Speaker 1: for that. We really appreciate this excellent reporting. Michelle Davis,
11:51
Speaker 1: financial porter for Bloomberg News. Just a crazy story of Annie.
11:54
Speaker 1: I guess there's so much money slashing around there that
11:57
Speaker 1: there's bound to be fraud throughout the system. But again,
12:00
Speaker 1: when you see it at the bank, lebots a little. Yeah.
12:02
Speaker 1: I mean, it's it's terribly sad. It's very very disturbing.
12:05
Speaker 1: It takes away grants and loans from people who really
12:08
Speaker 1: needed it as opposed to be get over employed therefore
12:11
Speaker 1: presumably didn't also have a small business on the side
12:13
Speaker 1: or need it, and it's just it's just terrifying. Well,
12:19
Speaker 1: let's start with the US economic data. Plenty to talk
12:22
Speaker 1: about in Europe today as well, but this morning we
12:24
Speaker 1: got initial topless claims coming in a little more than
12:27
Speaker 1: expected eight hundred eighty four thousand, continuing claims much higher
12:31
Speaker 1: thirteen point three eight five million. And we also got
12:35
Speaker 1: p p I data a little higher than expected both
12:39
Speaker 1: for the final demand month over month headline figure and
12:43
Speaker 1: also you know ex food and energy year over year,
12:46
Speaker 1: which rules quite substantially. Let's bring in someone who can
12:48
Speaker 1: make sensible all this for a Steve Blitz is chief
12:50
Speaker 1: US economist for T. S. Lombard. Steve, can we begin
12:54
Speaker 1: with the p p I data, because we all know
12:56
Speaker 1: that the labor market is in a terrible way. What
12:59
Speaker 1: does the PPI data say about inflation? Nothing? It says
13:05
Speaker 1: a lot of It says a lot about prices. UM,
13:08
Speaker 1: and there's a difference between prices and inflation. And what
13:12
Speaker 1: the p p I is reflecting is shortages and supply
13:17
Speaker 1: chain issues that are still um kind of getting back
13:21
Speaker 1: online in some case, in some cases still disrupted. Uh.
13:25
Speaker 1: And you've got a big rush to get back to
13:28
Speaker 1: produce things because he was shut down for a while.
13:30
Speaker 1: So UM. I think of these price changes really as
13:35
Speaker 1: healthy in the sense that this is doing what the
13:39
Speaker 1: FED prevents the capital markets from doing, which is price
13:42
Speaker 1: changes to direct effort and money and all that. Uh.
13:47
Speaker 1: In different directions, and that's where the well functioning market
13:50
Speaker 1: economy does so. So Steve, when you say nothing in
13:54
Speaker 1: terms of inflation, explained to us the p p i
13:57
Speaker 1: X food and energy, so all other goods. Doucers are
14:00
Speaker 1: paying point six more in August than they were last year,
14:06
Speaker 1: and economist are looking for them to paying point more.
14:09
Speaker 1: How is that not more difficult for producers to pay
14:12
Speaker 1: and therefore inflationary well, because over time the prices that
14:18
Speaker 1: they are paying for these inputs will go down as
14:23
Speaker 1: supply chains come back on. In addition, you talk about
14:29
Speaker 1: moving those prices forward with high levels of unemployment, where
14:34
Speaker 1: you're continuing to add people to the unemployment roles in
14:38
Speaker 1: terms of initial well above the prior recession. UH, then
14:42
Speaker 1: the demand side, broadly speaking, it's going to be weak.
14:47
Speaker 1: And so that is not a combination that is going
14:52
Speaker 1: to allow firms to pass through these prices and sustain margins.
14:57
Speaker 1: So their input costs will go down over time as
15:00
Speaker 1: these UH supply issues change and the demand's not going
15:04
Speaker 1: to be there. And that's why I say it's not inflation.
15:07
Speaker 1: Inflation in this country. You get inflation when you've got
15:12
Speaker 1: a lot of leverage buying going on, uh to buy
15:16
Speaker 1: real goods and UH, that kind of leverage is what
15:20
Speaker 1: this is what Defense been trying to create for the
15:23
Speaker 1: last and odd years. Uh. That's when you start to
15:27
Speaker 1: get a real inflation. Uh, this is just price changes.
15:32
Speaker 1: Prices are up, now, prices can go down. All right, Steve,
15:36
Speaker 1: let's switch. Here is a little bit and more data
15:38
Speaker 1: this morning out the jobless claims UH came in at
15:41
Speaker 1: eight thousand. The expectation consensus was eight. Give us your
15:46
Speaker 1: sense of kind of where we are in the jobs market,
15:49
Speaker 1: seems like or at the stubbornly high level of jobless claims. Yeah.
15:55
Speaker 1: And as I mentioned just before, I think sick hundred
16:00
Speaker 1: and eighty thousand or something was the peak month of
16:02
Speaker 1: January of two thousand nine in the last procession. So
16:06
Speaker 1: that just tells you how high this initial claims number
16:09
Speaker 1: really is. UH. And that was ten unemployment. Now you've
16:17
Speaker 1: got two job markets, and that's what makes these gross
16:20
Speaker 1: backgrod numbers so difficult to discern. You've got the people
16:24
Speaker 1: who are temporarily laid off back in the spring, and
16:27
Speaker 1: about half of them are back on the job. As
16:31
Speaker 1: the reopenings continue, I would expect more people to get
16:34
Speaker 1: back on the job. And that's all a very very
16:37
Speaker 1: positive event. By the same token, there is an emerging
16:42
Speaker 1: recession as firms recalibrate their expectations for growth going forward,
16:47
Speaker 1: but to build back cash loss in Q two all
16:50
Speaker 1: sorts of things, and the number of people who are
16:55
Speaker 1: unemployed and say their jobs have been permanently lost is
16:59
Speaker 1: up over four million. It jump in August. Uh, if
17:03
Speaker 1: you go back to April, that huge number of people
17:07
Speaker 1: got unemployed. A of that was people said that job
17:11
Speaker 1: loss was temporary. What I have been saying since April
17:15
Speaker 1: and still saying and watching, it's the permanent job loss
17:19
Speaker 1: because that's the number that reflects an underlying recessionary environment
17:25
Speaker 1: that as the reopening start to fade simply because you know,
17:28
Speaker 1: everything's reopened there has reopened as much as people feel
17:31
Speaker 1: safe to reopen everything, um, that number and the impact
17:36
Speaker 1: that that number has on spending, etcetera will begin to
17:42
Speaker 1: dominate the data. So, Steve, what should we be looking
17:47
Speaker 1: for incoming weeks? I mean, obviously we got the news
17:50
Speaker 1: that indoor dining will start out a quarter capacity in
17:53
Speaker 1: New York City, which hopefully might bring back a few
17:56
Speaker 1: more jobs here and there. But what will the data
17:59
Speaker 1: that you be most concentrated on the well, right now,
18:04
Speaker 1: the word unfortunately it comes every month, right, I think
18:07
Speaker 1: there's all that high frequency data that tells you that
18:09
Speaker 1: reopenings are continuing. And I think that's that's great and
18:13
Speaker 1: very happy is in New York City resident, Very happy
18:15
Speaker 1: to see, he said, at least indoor dining because the
18:18
Speaker 1: winning where all these restaurants are gonna do when it
18:20
Speaker 1: gets to be too cold to sit outside to eat.
18:23
Speaker 1: But um, the number to watch every single month is
18:29
Speaker 1: this job losses, permanent job losses, and that's really the
18:34
Speaker 1: number and that will and then the second part of
18:38
Speaker 1: that is that as that continues to go, watch these
18:41
Speaker 1: forward expectations numbers because the forward expect because those phone
18:46
Speaker 1: expectation numbers never really dipped as one would have expected
18:51
Speaker 1: in their normal recession. All right, Steve, thank you so
18:53
Speaker 1: much for Joiner's got leave it there. Steve Blitz, chief
18:56
Speaker 1: US economist for T. S. Lombard, giving us his thoughts
18:59
Speaker 1: on current economic conditions. We're just looking at the SP
19:04
Speaker 1: five here. We're off about seven or eight percent off
19:06
Speaker 1: of that recent high of just several days ago. But
19:09
Speaker 1: let's be clear here, we're over off of that March low,
19:13
Speaker 1: so a tremendous move up in the market despite some
19:16
Speaker 1: recent pullbacks here. To get a sense of where we
19:18
Speaker 1: go from here and what the drivers are that we
19:21
Speaker 1: should be focusing on, let's welcome Michael Scaling, portfolio manager
19:24
Speaker 1: of Manu Menu Life Asset Management based in Boston. Michael,
19:27
Speaker 1: thanks so much for joining us here. So we've had
19:29
Speaker 1: a little bit of a pullback here. Uh, the question
19:32
Speaker 1: is you know what's driving it and how do we
19:35
Speaker 1: What we really think about is over the next couple
19:36
Speaker 1: of quarters, heeries as it relates to the equity markets. Sure, well,
19:40
Speaker 1: good morning and thanks for having me. Um. I think
19:42
Speaker 1: that after we've seen as you just reference, that huge
19:45
Speaker 1: move off of the bottom of fifty plus percent, not
19:48
Speaker 1: surprising at all to see us give a little bit
19:49
Speaker 1: of that back and consolidate some gains, especially when you
19:54
Speaker 1: driver consider that the majority of this big move that
19:57
Speaker 1: we've seen has been multiple expansion on the SM five.
20:00
Speaker 1: So UM, I think that while it's been a big
20:03
Speaker 1: move in in a short amount of time, I wouldn't
20:06
Speaker 1: read too much into the more recent results on the market.
20:09
Speaker 1: Is it you know, the market just doesn't climb to
20:12
Speaker 1: the sky forever. What are you anticipating will be the
20:17
Speaker 1: catalyst for the next move for this market, whether at
20:20
Speaker 1: the upboard down. Well, I think it's going to be
20:23
Speaker 1: more driven. I'm really less focused on the the actual
20:27
Speaker 1: move in the market and just more focused on the
20:29
Speaker 1: individual stocks. I mean, it certainly feels like this has
20:32
Speaker 1: been the best pure stock picking market that's seen since
20:35
Speaker 1: prior to the financial crisis. Uh. And you've certainly seem
20:39
Speaker 1: differentiation in individual stocks. I mean a lot of people
20:42
Speaker 1: like to talk about the move and the fangs, but
20:44
Speaker 1: what what's that really reflective of is a great stock
20:47
Speaker 1: pickers environment. Um. One thing I would keep in mind
20:51
Speaker 1: on the market as you look at it is I
20:53
Speaker 1: talked about before about the multiple expanding. I mean, it's
20:55
Speaker 1: not surprising that the market is trading at very elevated
20:59
Speaker 1: valuation today, and frankly, I would expect that that's going
21:02
Speaker 1: to continue for a very long time, meaning years as
21:06
Speaker 1: you can no longer fund any liabilities from the fixed
21:09
Speaker 1: income markets after the collapse in US interest rates. All Right,
21:14
Speaker 1: so where do we go from here? What are some
21:16
Speaker 1: of the sectors that we should be looking at here?
21:18
Speaker 1: Because it appears that the economy, while it's coming back,
21:22
Speaker 1: is coming back very very slowly, despite the incredible accommodation
21:27
Speaker 1: provided by the foot of Reserve. Yeah, it's been interesting.
21:30
Speaker 1: So this week there's actually been a few industry conferences
21:32
Speaker 1: which have been attending, and was on one just right
21:34
Speaker 1: before we came on live here. UM. I think what's
21:37
Speaker 1: interesting is that, you know, heading into this week with
21:39
Speaker 1: a lot of the retailers and consumer stables companies presenting
21:43
Speaker 1: at various conferences. UM. Frankly, I was expecting to hear
21:47
Speaker 1: more about kind of a late August slowdown and stimulus
21:50
Speaker 1: UM and the enhanced unemployment benefits were unwound UM and
21:55
Speaker 1: just the slowing and foot traffic its stores and those
21:58
Speaker 1: kind of things. But frankly, you haven't heard that from
22:00
Speaker 1: anybody at any of these conferences. Uh. They continue to
22:03
Speaker 1: talk about a solid demand environment, a little bit of
22:06
Speaker 1: the unknown if there isn't another stimulus package passed. UH.
22:10
Speaker 1: And the other thing they continue to talk a lot
22:12
Speaker 1: about is just UM it concerns around securing enough inventory
22:16
Speaker 1: as some of the supply chains have been disrupted as
22:19
Speaker 1: we saw the depth of COVID earlier this year. I
22:23
Speaker 1: would love your thoughts on the succession plan at City
22:27
Speaker 1: that came out today. Yeah, so, uh, in the John
22:31
Speaker 1: Hancock Violence Fund that I run, we don't own shares
22:34
Speaker 1: of City Group. Um. It's uh, the woman that was
22:37
Speaker 1: announced to the CEO, I'm not familiar with her. Um. Frankly,
22:41
Speaker 1: a little bit surprised that Michael Corbett is retiring so quickly.
22:44
Speaker 1: I mean, I don't know that that was on the
22:47
Speaker 1: immediate radar of any shareholder. Um. But obviously you know,
22:51
Speaker 1: in terms of humanity, a great day that she's gonna
22:54
Speaker 1: be the first woman wondering running one of these large
22:56
Speaker 1: global banks. How about on the technology front, give us
23:00
Speaker 1: you later thoughts on Apple that's been such a leader
23:03
Speaker 1: in the market place, and I guess some concerns that
23:07
Speaker 1: you know, is there a bear case out there for Apple? Yeah?
23:11
Speaker 1: So it's funny I think as we've gone through these
23:14
Speaker 1: iPhone cycles the last ten years, the price action and
23:18
Speaker 1: Apple stock has become more and more pronounced in terms
23:22
Speaker 1: of the playbook that everybody follows, and that is that
23:25
Speaker 1: you ride up Apple into the announcement of the iPhone
23:28
Speaker 1: update coming, and then after the initially announcement, the stock
23:32
Speaker 1: pens underperform I think some of this big run up
23:35
Speaker 1: that we saw throughout the course of the spring and
23:37
Speaker 1: into the summer was largely attributable to that, as this
23:41
Speaker 1: is expected to be kind of a benchmark type cycle
23:44
Speaker 1: with the rollout of the five G I phone. UM
23:47
Speaker 1: but the stock is cooled off obviously in the last
23:50
Speaker 1: week or two here. You know, if you wanted to
23:52
Speaker 1: make the bearcase argument on Apple, it would be largely
23:55
Speaker 1: around valuation, right. I mean, the stock has had such
23:57
Speaker 1: a high, big run that it's now trading in a
24:00
Speaker 1: twenties multiple UM and uh, you know when you think
24:04
Speaker 1: about the fact that this is still a company that
24:06
Speaker 1: sells an iPhone every couple of years. You know, if
24:09
Speaker 1: you wanted to be maybe put a bear scare in
24:11
Speaker 1: the stock, that that would be it. Right, is that
24:13
Speaker 1: it's still cycle dependent um and and and consumer electronics company.
24:17
Speaker 1: Now that's not to say that I believe it, but
24:19
Speaker 1: that's what a bear would tell you. Okay, well, we're
24:22
Speaker 1: going to get that event on the fifteenth, so just
24:24
Speaker 1: early next week, to reveal the new watch and also
24:27
Speaker 1: you know, a new iPhone cycle. Will it be successful?
24:30
Speaker 1: What are you anticipating? Yeah, I do expect that there's
24:33
Speaker 1: a fair amount of pent up demand. Uh. You know,
24:36
Speaker 1: the last handful of years, you're certainly seen in elongation
24:40
Speaker 1: in terms of the cycle that people actually hold onto
24:43
Speaker 1: their iPhones. So I do think there's a there there's
24:45
Speaker 1: quite a bit of pent up demand. Um. I would
24:48
Speaker 1: hedge that a little bit in when you look at
24:51
Speaker 1: where we are from unemployment levels both domestically and just
24:55
Speaker 1: economic stresses that you're seeing globally. Um, you know, it's
24:59
Speaker 1: a bit more of a stretch for people to run
25:01
Speaker 1: out and spend a thousand dollars on a new phone,
25:03
Speaker 1: So I think you do have to kind of hedge
25:05
Speaker 1: on it from that front. And I think the other
25:07
Speaker 1: thing is there's still an education process that needs to
25:10
Speaker 1: go on, right. I mean, you've had some of these
25:12
Speaker 1: wireless service providers that have talked up that they're on
25:15
Speaker 1: five G e uh and people might think they have
25:18
Speaker 1: a five G I phone. They don't have a five
25:20
Speaker 1: G I phone until they have an iPhone with a
25:22
Speaker 1: five G chip in it. So there is a bit
25:24
Speaker 1: of an education headwin there as well for some less
25:27
Speaker 1: informed consumers. Michael, thank you, always a pleasure of speaking
25:29
Speaker 1: with you. Michael Scalan Portfolio manager from Manu Life Asset Management.
25:36
Speaker 1: Thanks for listening to Bloomberg Markets podcast. You can subscribe
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Speaker 1: at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter
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