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Oil Demand Hopes Crushed By Covid Resurgence: Again's Kilduff · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, 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. Well, markets continue to sell
0:21
Speaker 1: off even more quantity if you like. Now the s
0:25
Speaker 1: is down two and oil is downward than three. Four
0:31
Speaker 1: barrel of w T I the perfect time to have
0:33
Speaker 1: on John killed off of again Capital John. Why is
0:38
Speaker 1: oil selling off so much today? One to punch here today, Lonnie,
0:43
Speaker 1: we have a sudden increase, if not full restoration looming
0:47
Speaker 1: for Libyan's Libya's oil production. They're going to be going
0:50
Speaker 1: up to his high as a million barrels a day,
0:51
Speaker 1: probably by the beginning of next month, if not sooner.
0:55
Speaker 1: They're already at around six And this all this news
1:00
Speaker 1: about the coronavirus outbreaks um, particularly in Europe where there
1:04
Speaker 1: were rumors in the market overnight of France, Italy and
1:07
Speaker 1: Spain going back to full lockdown, UH, just really crushed
1:11
Speaker 1: the sentiment in the oil market. Because with with that
1:14
Speaker 1: kind of news, with those kind of developments, you know,
1:16
Speaker 1: we're just not going to see the kind of rebound
1:19
Speaker 1: in passenger travel in cars and planes anytime soon. John,
1:24
Speaker 1: I know, Um and chatting with you in the past,
1:26
Speaker 1: it's all about supply and demand here. Everybody's got their
1:29
Speaker 1: supply models, everyone has their demand models here. Do you
1:32
Speaker 1: have a sense of kind of what's really driving the
1:34
Speaker 1: narrative here? Is it more then I constrained outlook on
1:38
Speaker 1: demand that's keeping oil where it is right here? Or
1:42
Speaker 1: do you think there's an equally important supply discussion. Well,
1:47
Speaker 1: you know, we've we've been stalemated obviously around the forty
1:49
Speaker 1: dollar barrel mark for a good six months. So I
1:51
Speaker 1: mean that the arguments on both sides, I've been kind
1:54
Speaker 1: of fears and like I said, you know, you know,
1:56
Speaker 1: pushed to a stalemate. I think there were it was
1:59
Speaker 1: a growing sent of hopefulness in the oil market, even
2:02
Speaker 1: as recently as a week or so ago, when we
2:05
Speaker 1: finally got a good gasoline demand number here in the
2:08
Speaker 1: US first, when that was near normal unfortunately nine million
2:12
Speaker 1: barrels a day. Unfortunately, we've fallen back again precipitously and
2:16
Speaker 1: now with this raised coronavirus situation, Um, the sort of
2:22
Speaker 1: hopefulness has been snuffed out, and um now we're gonna
2:26
Speaker 1: sort of have to hunker down again. We thought, look,
2:29
Speaker 1: the Northern Hemisphere winter is the peak demand season on
2:33
Speaker 1: a global basis, all the heating fuels that you need
2:36
Speaker 1: to get through that. We I think there was a
2:38
Speaker 1: lot of sense in the market, a lot of hope
2:39
Speaker 1: in the market that that would help stabilize things and
2:42
Speaker 1: get us get the market a bit higher. It's given
2:45
Speaker 1: what we're seeing with the coronavirus, it's going to remove
2:48
Speaker 1: any of the additional demand that goes along with that.
2:50
Speaker 1: Now we've got to keep our fingers cross and hope
2:52
Speaker 1: things get back to normal by next summer so that
2:54
Speaker 1: we can have a really strong driving season. If you
2:56
Speaker 1: if you're looking for the industry outlook to improve. How
3:00
Speaker 1: was it all messing with OPEC's fans, John, I mean,
3:02
Speaker 1: you know, I don't typically have feelings towards the cartels,
3:06
Speaker 1: but honestly, if there was any time to have a
3:08
Speaker 1: little bit of sympathy for the OPEC members, that would
3:10
Speaker 1: be Now I'm with you on that view, Vunny. I'm
3:14
Speaker 1: never really rooting for them myself. But uh, and I've
3:18
Speaker 1: never rooting for higher prices either. It's just that there
3:21
Speaker 1: there's such a cob sort of feeling. But you know,
3:23
Speaker 1: this this oil industry, who I have a lot of
3:25
Speaker 1: friends and know and and you know, do you like
3:27
Speaker 1: very much? I mean it's been left for dead, um,
3:29
Speaker 1: But this is this is this is a terrific struggle
3:32
Speaker 1: for them. Um. You know, they've they've cut back, you know,
3:35
Speaker 1: really as much as they can stand to, especially a
3:38
Speaker 1: lot of the countries that are struggling like a rack,
3:41
Speaker 1: who are dying to put more oil on the market,
3:42
Speaker 1: Russia to a lesser degree. And you know, they were
3:45
Speaker 1: kind of counting their blessings as you know, rough as
3:47
Speaker 1: this might be to say that that Libya was offline
3:50
Speaker 1: due to the civil war there. Now this sudden influx
3:53
Speaker 1: of another million barrels from Libya just really upbends their calculus.
3:56
Speaker 1: And it's going to be a tough slog, particularly that
4:00
Speaker 1: oil sticks, because that's very valuable oil, very much desired
4:04
Speaker 1: in in central in Western Europe um, and it gets
4:09
Speaker 1: heavily marketed. So they're going to displace a lot of
4:11
Speaker 1: the other barrels that are that are in this market. So, John,
4:14
Speaker 1: give us an update on the US shell patch. How
4:17
Speaker 1: tough our conditions down there out there. I have one
4:23
Speaker 1: major oil CEO telling me this is the darkest period
4:27
Speaker 1: in the industry you know. Ever, Um, you know they're
4:30
Speaker 1: they're struggling, and um, well you're seeing right now though,
4:35
Speaker 1: is sort of the seeds being sown to sort of
4:38
Speaker 1: rectifier or re constitute what's happening there. And you've seen
4:43
Speaker 1: several big mergers over the past two weeks now, Um,
4:47
Speaker 1: and you know you've seen a slew of bankruptcies. So
4:50
Speaker 1: at some point here the production you know, is gonna
4:53
Speaker 1: has it has already stabilized from A from A and
4:57
Speaker 1: down from a much higher level, and that's going to
5:00
Speaker 1: feed into higher prices down the road here once things
5:03
Speaker 1: do recover, John, If you're trying to trade this whole
5:08
Speaker 1: era in some way, is there a commodity that you
5:11
Speaker 1: buy or that you'd short if in the complex if
5:17
Speaker 1: you want to energy, the brightest star on the board
5:20
Speaker 1: right now is natural gas. Uh, there's a lot going
5:23
Speaker 1: for it there. L n G exports for example, have
5:26
Speaker 1: really ramped up again to pre pandemic levels. That's helping,
5:29
Speaker 1: as has exports to Mexico and UM again here too,
5:33
Speaker 1: we've seen that decline in production is going to be
5:35
Speaker 1: more and more constrained supply, particularly if I think if
5:38
Speaker 1: we get a Biden administration, a lot of the associated
5:40
Speaker 1: gas that gets flared or what have you is going
5:43
Speaker 1: to be curtailed, so that that's the brightest commodity on
5:46
Speaker 1: the board right now. Beyond that, I think you have
5:49
Speaker 1: to sort of take a look at diesel fuel of
5:51
Speaker 1: a heating oil contract here, because one thing that has
5:55
Speaker 1: helped held up at demand wise is the over the
5:58
Speaker 1: road truck traffic. The jet fuel, know, but over the
6:01
Speaker 1: road truck traffic, uh, you know is probably the closest
6:04
Speaker 1: to normal we have of the several major categories, that
6:07
Speaker 1: being gasoline, jet fuel, and diesel fuel. John, you mentioned
6:11
Speaker 1: potential Biden uh presidency. What are the folks that you
6:16
Speaker 1: talked to? How did they think that would play out?
6:19
Speaker 1: If that work to occur, what would that mean for
6:20
Speaker 1: the industry? Uh? The senses he won't be a complete
6:24
Speaker 1: disaster for the drilling industry or the fracktors for that matter.
6:28
Speaker 1: You know, it's it's become too big of a deal
6:30
Speaker 1: for the US. I mean, one of the things but
6:32
Speaker 1: like to point out is that it was the Obama
6:34
Speaker 1: administration that approved or and permitted the export of US
6:38
Speaker 1: crude oil, which has climbed to let around three million
6:40
Speaker 1: barrels a day on average these days, which has been
6:43
Speaker 1: a huge right spot for the industry and really UH
6:46
Speaker 1: is propping a lot of the producers up. It's been
6:49
Speaker 1: really helpful, and China has stepped up. We are now
6:52
Speaker 1: China's number four supplier of foreign crude oil, so that's
6:55
Speaker 1: have been a big development. The problem is going to
6:57
Speaker 1: be um for what I just talked about in terms
7:00
Speaker 1: of natural gas, the flaring um and the and the
7:03
Speaker 1: methane associated with fracking some of those wells, but also
7:06
Speaker 1: to what the Obama administration really went after where the
7:10
Speaker 1: refiners um and and the emissions there and obviously the
7:14
Speaker 1: Cafe car fuel standards. So it's sort of that end
7:17
Speaker 1: of the operation more downstream that will probably be pinched.
7:21
Speaker 1: But you know, we are oversupplied in terms of refineries
7:23
Speaker 1: right now anyway, so um they won't be missed. Wow,
7:29
Speaker 1: it's an amazing state of affairs, isn't it, John, Tom,
7:31
Speaker 1: Thank you. Always fascinating to speak with John killed off
7:35
Speaker 1: right Paul. Yeah, it's it's interesting, really tough times for
7:38
Speaker 1: those American ship producers. It is a great pleasure now
7:44
Speaker 1: to welcome back to the program the CFO of Impossible Foods,
7:48
Speaker 1: David Lee joins us after another quarter of considerable effort
7:52
Speaker 1: and work. So, David talk to us about why you
7:56
Speaker 1: guys are doubling the size of your R and D
7:58
Speaker 1: team over the next twelve Well, simply put, our investment
8:03
Speaker 1: in research and development is our highest returning investment. It's
8:07
Speaker 1: the source of the innovation behind the impossible burger. You
8:11
Speaker 1: saw us launch one point oh and then two point
8:13
Speaker 1: oh impossible Sausage, and now you're seeing us roll out
8:17
Speaker 1: in retail in Asia. Really, innovation and technology is impossible
8:23
Speaker 1: food source for growth, and that's why we're doubling down
8:26
Speaker 1: on it. So David talked to us about how your
8:29
Speaker 1: business has been faring over this last seven eight months
8:31
Speaker 1: during the pandemic, How it's uh, how you guys have
8:35
Speaker 1: had to adapt. Well, we certainly, like everyone else, has
8:41
Speaker 1: been watching headlines rollout seemingly every day about this global pandemic,
8:45
Speaker 1: and we certainly don't have a crystal ball. But one
8:48
Speaker 1: thing that's clear is we're following where the meat eater
8:51
Speaker 1: is going to buy meat. You know, of our consumers
8:55
Speaker 1: are hardcore meat eaters. The vast majority of our sales
8:59
Speaker 1: are being sourced people who want meat, and as a result,
9:02
Speaker 1: we've had to adjust to where they're going, which is
9:04
Speaker 1: increasingly you know, shipped direct to their home, which is
9:08
Speaker 1: why we launched our direct to consumer business as well
9:11
Speaker 1: as frankly in the grocery store. You know, our grocery
9:14
Speaker 1: business is now up on x since the beginning of
9:18
Speaker 1: the year, where at fifteen thousands grocery locations across the
9:22
Speaker 1: United States and Asia, and we're still growing that business.
9:26
Speaker 1: So we've really tried to meet the meat eater where
9:28
Speaker 1: they where they're buying cool. Well, talk to us about
9:32
Speaker 1: the fact that you're not looking for meat eaters and
9:34
Speaker 1: you're also competing with many companies that are trying to
9:37
Speaker 1: do the same thing now, including plant based companies. Well,
9:42
Speaker 1: you know, it's interesting about Impossible Food is that our
9:45
Speaker 1: core customer is the meat eater. Our mission is only
9:48
Speaker 1: achieved if meat eaters, like me and many others shoes
9:52
Speaker 1: and Impossible Burger made entirely from plants versus the thing
9:55
Speaker 1: from an animal. Um So As a result, our competition
9:58
Speaker 1: is kind of defined by our cust him or set.
10:00
Speaker 1: Our customers are meat eaters, and so our primary competition
10:03
Speaker 1: is meet from an animal, which is a one point
10:07
Speaker 1: seven plus trillion dollar global business. There's plenty of room
10:12
Speaker 1: for great brands who are offering better products to compete.
10:16
Speaker 1: So so we don't really worry about a lot of
10:18
Speaker 1: those other plant based companies because it's a rising tide
10:21
Speaker 1: as long as the source of sales, for example, for
10:24
Speaker 1: US is from the meat eater. So, David, are you
10:29
Speaker 1: finding similar consumer trends outside of the US? I know
10:33
Speaker 1: you're in Canada groceries. Uh, you expanded into Hong Kong
10:36
Speaker 1: and Singapore. Are you finding similar trends or any differences?
10:40
Speaker 1: You Know what's amazing about meat eaters is they love
10:43
Speaker 1: meet wherever they are. They make it bespoke and totally
10:47
Speaker 1: relevant for their cuisine and their culture, whether they're in Singapore,
10:50
Speaker 1: Hong Kong, Macaw, Canada, or the US. Um And so
10:54
Speaker 1: what we're seeing is because our products impossible beef meat
10:57
Speaker 1: from plants in Asia, for example, really appeal to the
11:00
Speaker 1: meat eater, we're seeing the same phenomenal growth there as
11:04
Speaker 1: we see here. In North America. You know, our business
11:07
Speaker 1: in Hong Kong, for example, is up a hundred and fifty.
11:11
Speaker 1: It's up in Singapore and uh, and we're just getting going.
11:16
Speaker 1: So that's the thing about meat. It's nearly ubiquitous, and
11:19
Speaker 1: it transforms in the hands of one chef into a
11:22
Speaker 1: very different cuisine than in the hands of another. And
11:25
Speaker 1: I think we're the only plant based company and Impossible
11:27
Speaker 1: Foods that has a product that actually transforms the impossible
11:31
Speaker 1: burger transforms in the hands of the chef, make it
11:34
Speaker 1: rare or well done, or a bowler or a dumpling,
11:37
Speaker 1: or about which is why we're excited about our global growth.
11:41
Speaker 1: What are your margins, David Well? One of the benefits
11:45
Speaker 1: of remaining private is I'm not yet in the business
11:48
Speaker 1: of disclosing quarterly results. Can you tell us if you're profitable?
11:53
Speaker 1: I can tell you that it's a strategic choice to
11:55
Speaker 1: invest in the business. We make money on every unit
11:59
Speaker 1: that we make uh. And it's because we use a
12:01
Speaker 1: fraction of the resources of the incumbent industry. We just
12:04
Speaker 1: need scale to be out or below the cost of
12:07
Speaker 1: commodity ground beef and and people are willing to pay
12:09
Speaker 1: a bit more for our product because it has no cholesterol,
12:13
Speaker 1: less calories, you less fat, but all the protein and
12:16
Speaker 1: the impact you want on the world. Um. So for now,
12:19
Speaker 1: I can just tell you that we were designed to
12:22
Speaker 1: be cost competitive in addition to tasting great. And we'll
12:25
Speaker 1: have to wait on specific figures until later when you
12:29
Speaker 1: expect to go public. Well, we have not made any
12:33
Speaker 1: announcement to be public through auspact despect which seems to
12:37
Speaker 1: be very fashionable these days, or through the direct listing
12:40
Speaker 1: right po. Um. But you know, we race one point
12:43
Speaker 1: five billion dollars of equity and our investors, including CO
12:46
Speaker 1: two and CO slid horizons. These investors are sophisticated. They
12:51
Speaker 1: expect us to be operating as if we're public anyway. UM.
12:55
Speaker 1: So it's a strategic choice. It's one that we're not
12:57
Speaker 1: choosing to make today, but it remains an option for
13:00
Speaker 1: the company. So curious as to why you brought up
13:02
Speaker 1: the words back is, did somebody approach you? Oh? No, no,
13:07
Speaker 1: I I read the headlines that you guys felt right,
13:09
Speaker 1: and it's very clear we are all living in a
13:12
Speaker 1: spack bowl market. Uh and uh. As a result, as
13:15
Speaker 1: a as any as any financial professional, wed I'm keeping
13:19
Speaker 1: abreast of the changing times. It's remarkable how many announcements
13:23
Speaker 1: seemed to be coming up every day about a new
13:25
Speaker 1: spac raged or a new spact. These fact consummated. Hey, David,
13:29
Speaker 1: thanks so much for joining us. We appreciate it. Always
13:31
Speaker 1: love to get an update on your fast growing business.
13:34
Speaker 1: David Lee, CFO of Impossible Foods. It's interesting, Vonnie, the
13:39
Speaker 1: growth that they're seeing as a target meat lovers. Um.
13:42
Speaker 1: I thought they would target, you know, folks that don't
13:44
Speaker 1: care for me. But let's go to that big, big market.
13:47
Speaker 1: I would like to see the research on that pole,
13:48
Speaker 1: to be quite honest, I would I see where they're
13:50
Speaker 1: where they're targeting meat lovers and why and who told
13:53
Speaker 1: them to and what's the evidence that that's a better
13:56
Speaker 1: frame of reference than than plant based lovers. Yeah, exactly
14:00
Speaker 1: so uh but interesting growth story. There will be an
14:02
Speaker 1: inching I p O when it does come. Well, a
14:06
Speaker 1: rough start to the week for financial markets here again,
14:09
Speaker 1: no visible movement on fiscal stimulus, and the numbers on
14:13
Speaker 1: the pandemic around the world going in the wrong direction.
14:17
Speaker 1: Investors trying to discount those new bit new items in
14:21
Speaker 1: the market. Let's get a sense of what's going on
14:22
Speaker 1: across markets. We can do that with Sarah pon Check
14:25
Speaker 1: Bloomberg Cross Asset reporter. Sarah, thanks so much for joining
14:29
Speaker 1: us here. Kind of what's the feel this morning here? Um,
14:33
Speaker 1: as we start the week's trading, it seems obviously a
14:35
Speaker 1: risk off feel what you see in across markets, right,
14:38
Speaker 1: glad to be here, certainly a risk off field though
14:40
Speaker 1: you look across the major ravages. We have the SMP
14:43
Speaker 1: five hundred down nine tenths of a percent, the down
14:45
Speaker 1: down more than one percent. The NASDAC, though, is your
14:48
Speaker 1: outperformer flat on the morning, and as you mentioned, investors
14:52
Speaker 1: are concerned with the resurgence of the virus. US reported
14:55
Speaker 1: a record new cases for a second day, adding more
14:57
Speaker 1: than eighty five thousand. We continue to see the rest
15:00
Speaker 1: surgeons in Europe with record cases in France and Italy.
15:04
Speaker 1: With that, we see the stay at home trade re
15:07
Speaker 1: emerging and that really asserting itself in the NAZAC out
15:11
Speaker 1: performance today. I'll highlight a few stocks if I look
15:14
Speaker 1: at the best performers in the Nasdaq as we speak,
15:17
Speaker 1: Zoom up three point nine percent, a m D higher, Amazon,
15:22
Speaker 1: Docu sign Take two Interactive. These are some of your
15:25
Speaker 1: names that really have come to be known as your
15:28
Speaker 1: stay at home plays that stand to benefit in a
15:31
Speaker 1: quarantine lockdown restricted economy. At the same time, you look
15:35
Speaker 1: at your worst performance today in the s and P
15:37
Speaker 1: five hundred, many of your cruise lines, for example Carnival
15:40
Speaker 1: in Norwegian Royal Caribbean all down more than seven percent
15:44
Speaker 1: at the moment. So this trade is clearly filtering through
15:47
Speaker 1: the market as COVID nineteen just remains the number one story.
15:51
Speaker 1: What really strikes me is oiled back well below barrows.
15:56
Speaker 1: So we have cl one which is you know w
15:59
Speaker 1: t I here in New York at right, So w
16:03
Speaker 1: t I crude oil has really been lodged around that
16:06
Speaker 1: forty dollar a barrel mark. And when you think about
16:09
Speaker 1: oil prices this year, obviously the demand side of the
16:12
Speaker 1: equation is so significant, especially when we think about I
16:17
Speaker 1: mean I just mentioned cruise lines, but airlines too if
16:19
Speaker 1: they are not resuming activity, the effect that that has
16:23
Speaker 1: on oil demand. At the same time, there have been
16:24
Speaker 1: some supply concerns to but certainly a daylight today when
16:28
Speaker 1: COVID nineteen is really affecting markets, when investors are once
16:33
Speaker 1: again considering the fact that this is a true risk.
16:37
Speaker 1: It has certainly not gone away. There are possibilities that
16:40
Speaker 1: we may see further economic restrictions ahead. What does that
16:43
Speaker 1: mean for oil demand and taking a hit? We see
16:45
Speaker 1: w T I crude oil right now down two point
16:47
Speaker 1: nine percent and Brent down two point eight percent. Two
16:51
Speaker 1: Despite this risk off, feel Jack Moss plowing ahead with
16:54
Speaker 1: his biggest I p O ever just extraordinary. It is
16:57
Speaker 1: pretty unbelievable. And Group is set raise about thirty four
17:01
Speaker 1: and a half billion dollars through its I p O
17:04
Speaker 1: s both in Shanghai and in Hong Kong. So it's unbelievable,
17:08
Speaker 1: going to outpace even Saudio Rampco. When you think about
17:11
Speaker 1: the value that this company is going to have, as
17:13
Speaker 1: Bloomberg highlights, once it goes public, it's expected to have
17:16
Speaker 1: a market value of three hundred and fifteen billion, So
17:19
Speaker 1: that is about the same valuation as JP Morgan in
17:22
Speaker 1: four times larger than Goldman Sachs. Imagine that. But consider
17:26
Speaker 1: the environment that we have seen. Sure, I'm going to
17:28
Speaker 1: bring it back to the United States, and we are
17:30
Speaker 1: not seeing an I p O in the US for
17:31
Speaker 1: and Group. But if you look at the I p
17:33
Speaker 1: O E t F this year, so it's sicker I
17:36
Speaker 1: p O it is up seventy five percent in twenty
17:41
Speaker 1: a year that has been dominated by COVID nineteen restrictions,
17:45
Speaker 1: a recession. Uh, we have an election. There are many
17:48
Speaker 1: risks and uncertainties. The fact that you have newly public
17:51
Speaker 1: companies just soaring is really a sight to see and
17:54
Speaker 1: to put that sevent in perspective for you that since
17:59
Speaker 1: the I p O e TF has existed since is
18:02
Speaker 1: would be the largest yearly gain. And those are your
18:07
Speaker 1: two other very strong years only gains and I say
18:09
Speaker 1: only a little bit sarcastically gains in the thirty percent range.
18:13
Speaker 1: So this will be more than double that. We're also
18:16
Speaker 1: saying other places where the virus is resurgent, lower slodacs
18:20
Speaker 1: in Germany down two point eight percent, they can forty
18:23
Speaker 1: down one point one percent, and you're not so much
18:25
Speaker 1: London then just three tenths of percent. Right now, we
18:29
Speaker 1: really like, really weighing on German markets right now is
18:32
Speaker 1: s a p so that German software giant SAP down
18:36
Speaker 1: more than tw at the moment. And this isn't just
18:41
Speaker 1: a euro a German story. This really affects the outlook
18:45
Speaker 1: for equities around the globe, and I would argue that
18:47
Speaker 1: this is playing into the weakness that we're seeing today
18:49
Speaker 1: in the U S as well. What happened was they
18:52
Speaker 1: cut their full year revenue estimates and they also said
18:54
Speaker 1: that a fresh wave of lockdowns would hurt demand through
18:56
Speaker 1: the first half of one. Now, think about what we
19:00
Speaker 1: are expected to see for the earnings picture for companies
19:03
Speaker 1: in one We're supposed to see a pickup again. We
19:07
Speaker 1: are supposed to see companies almost resume a sense of
19:10
Speaker 1: normalcy or at least be able to deal with the
19:12
Speaker 1: virus and get back on track. Well s a p
19:14
Speaker 1: is saying that's not the case. They think that lockdowns
19:17
Speaker 1: are going to restrain demand and and their business prospects
19:20
Speaker 1: into next year. And that makes you really think, well,
19:23
Speaker 1: does that mean the E in the pe ratio doesn't
19:26
Speaker 1: mean earnings need to come down? For one, just as
19:29
Speaker 1: analysts are have started to really grow more optimistic. Essentially,
19:34
Speaker 1: we're gonna get a lot of tech earnings this week too, sir, Oh,
19:37
Speaker 1: yes we are. It's it's this is the busiest week
19:38
Speaker 1: of earning season. So we're entering the third week fifteen
19:42
Speaker 1: trillion dollars worth of SMP market cap report this week,
19:46
Speaker 1: and I'll give you a bit of the rundown. Tomorrow
19:49
Speaker 1: we'll have Microsoft, A m D. We'll also hear from Fiser, Eli,
19:53
Speaker 1: Lily mark E. Then Wednesday we have MasterCard and Visa
19:57
Speaker 1: very large companies as well. But Thursday is going to
20:00
Speaker 1: be quite the day after the bell, Facebook, Amazon, Apple,
20:03
Speaker 1: and Google all the same time. Wow, Sarah, you're gonna
20:07
Speaker 1: be busy and we're going to see you back here
20:08
Speaker 1: again tomorrow. Sarah pons act there cross us a reporter
20:12
Speaker 1: at Bloomberg News, covering everything from earnings to Chinese I
20:16
Speaker 1: P O, S, T E, t F S too oil.
20:19
Speaker 1: She can just do it all. As we approach seasons
20:25
Speaker 1: where you typically spend a little bit more money Black Friday, Halloween, Christmas,
20:30
Speaker 1: New Year's, let's get the retail take from somebody who
20:33
Speaker 1: knows a little bit about what's going on. And Craig Johnson,
20:36
Speaker 1: CEO of Customer Growth Partners. So, Craig, you know, every
20:40
Speaker 1: day we're reading about more and more retailers that are
20:42
Speaker 1: shutting down, going at bankruptcy, disappointing their creditors and so on.
20:46
Speaker 1: What is the story out there with with with with
20:49
Speaker 1: just retail in general, I suppose, Well, you have to
20:54
Speaker 1: realize that UM retail has always been a UM a
20:59
Speaker 1: secor with ups and downs. And what happens when you're
21:02
Speaker 1: in a down mode like we are right now UM
21:07
Speaker 1: or a challenging mode. Uh, the weaker players are going
21:11
Speaker 1: to get washed out. And that's what we're seeing. So
21:14
Speaker 1: the problem for many retailers is that over the past
21:18
Speaker 1: couple or three years they fail to uh right size.
21:23
Speaker 1: UH their store fleets with the demand. But now for
21:27
Speaker 1: many weaker retailers financially, UH, this has been a forced
21:32
Speaker 1: right sizing, which actually will leave the industry healthier. And
21:36
Speaker 1: for holidays, we're actually predicting that sales are going to
21:39
Speaker 1: be up five. Really jumped out of me. I'm thinking
21:44
Speaker 1: just in a you know, the consumer here, we're still
21:47
Speaker 1: up ten percent unemployment, we are the pandemic numbers going
21:49
Speaker 1: the wrong way in most of the country. Here, what's
21:52
Speaker 1: underpinning your I guess I would say surprisingly strong five
21:56
Speaker 1: increase ever year. Well, the difference now is is that
22:02
Speaker 1: the growth is not based on uh tapping into home
22:06
Speaker 1: equity or charging up your credit cards the way it
22:10
Speaker 1: was some years ago, when whenever we saw a strong
22:12
Speaker 1: retail growth. We're having very strong consumer fundamentals, and that's
22:17
Speaker 1: of robust five point four percent growth and disposal. Personal
22:20
Speaker 1: income UM wages are up UM eleven and a half
22:25
Speaker 1: new jobs have been created since the April nater of
22:28
Speaker 1: the of the COVID recession. UH and household balance sheet
22:31
Speaker 1: so the healthiest some decades. The FEDS household debt service
22:34
Speaker 1: ratio is its record low ever eight point seven percent
22:38
Speaker 1: versus a few years ago, and personal savings rates about
22:43
Speaker 1: so consumers have a lot of money. Basically, it's like
22:45
Speaker 1: dry powder cash available for spending. Last, but not least,
22:50
Speaker 1: is that you look at the most recent UH retail
22:54
Speaker 1: sales period, which was the back to school period, which
22:56
Speaker 1: ended up a few a few weeks ago into September.
22:59
Speaker 1: We had forecast back to school sales We're going to
23:02
Speaker 1: be up seven excuse me, I'm going to be at
23:04
Speaker 1: three point seven and they ended up being up seven
23:08
Speaker 1: point five percent. Double are already optimistic forecast. The numbers
23:13
Speaker 1: seem to be turning good. Where are you getting the
23:15
Speaker 1: data for households and for for personal spending and personal
23:19
Speaker 1: income and so on. It seems to me that you know,
23:23
Speaker 1: I'm sure there are plenty of households that have cash
23:26
Speaker 1: on hand out there, but is it a certain demographic
23:29
Speaker 1: that that you're primarily looking at. Well, this comes out
23:33
Speaker 1: of the Promer Commerce, the Bureau of Economic Analysis and
23:37
Speaker 1: UH personal income data and just DPI data, um, and
23:42
Speaker 1: so those are the personal income in September was down
23:45
Speaker 1: two points present and we're looking in August I should
23:49
Speaker 1: say was down to that is sequential. What we look
23:53
Speaker 1: at is the year of a year, year of a
23:55
Speaker 1: year number is what what what? What gives it? Because
23:57
Speaker 1: retail works on the year of year bays Uh, it's
24:01
Speaker 1: measured that way. Camps sales are not compersus the month
24:05
Speaker 1: prior to the card accomplished a year ago. So that
24:08
Speaker 1: is the relevant numbers UH for that and the FEDS
24:12
Speaker 1: Household Service Day. I see that's from that's from the
24:15
Speaker 1: Federal Reserve. So um uh. So constant households have money
24:20
Speaker 1: to spend. Now, there is clearly a bifurcation between the
24:24
Speaker 1: hundred and fifty million people with jobs versus the eleven
24:27
Speaker 1: million people that don't have jobs. Uh. The filters will
24:31
Speaker 1: folks without jobs are spending only on needs, whereas the
24:35
Speaker 1: people that have jobs are spending on both needs and wants.
24:39
Speaker 1: And you know, obviously those those those folks are that
24:42
Speaker 1: that segment, that large sector of the economy of the
24:45
Speaker 1: consumer condo, what's driving the higher higher forecast Greig. How
24:49
Speaker 1: concerned are you do you think or how concerned you
24:52
Speaker 1: think retailers are that it does not appear that we're
24:54
Speaker 1: going to get this additional round of fiscal stimulus. Um. Well,
24:59
Speaker 1: our our our forecast assumed that there would be the
25:04
Speaker 1: skinny package at some point before before holiday. And now
25:11
Speaker 1: whether that occurs or not, you know, we're not certain.
25:14
Speaker 1: But that's why we are base case forecast of five
25:17
Speaker 1: percent growth. We always bracket it with you know, scenario analysis.
25:22
Speaker 1: Uh that the high case scenario or six point nine
25:24
Speaker 1: percent growth in a low case is three point five.
25:27
Speaker 1: So if there's absolutely no uh incoming a thing before
25:33
Speaker 1: the incoming federal ad before the end of the year,
25:35
Speaker 1: beyond normal unemployment, um uh, you'll have growth at the
25:39
Speaker 1: three point five percent that lower forecast scenario. Graig. Five
25:47
Speaker 1: all of that, who who are you anticipating we'll go
25:49
Speaker 1: out of business between now and the end of the year. Um.
25:52
Speaker 1: We're not certain there's going to be any new bankruptcies
25:56
Speaker 1: We don't like to speculate on on bankruptcies as a
25:58
Speaker 1: number of UH retailers that are that are challenged, you know,
26:04
Speaker 1: in the department store sector, New and Marcus is still
26:07
Speaker 1: going through its situation, um uh, and in in apparel.
26:12
Speaker 1: Apparel and department stores are both still quite weak. UH sales.
26:16
Speaker 1: We've predicted down in the ballpark of ten eleven percent
26:19
Speaker 1: year of a year. But I'm not convinced anybody else
26:22
Speaker 1: will go out, you know, with with holiday sales starting
26:25
Speaker 1: now actually they started last month, UM, that people will
26:28
Speaker 1: will extra right this point. Hey, correct, Thanks so much
26:31
Speaker 1: for join us. As always, we appreciate your insights into
26:34
Speaker 1: all things retail. Craig Johnson, President Customer Growth Partners. He
26:38
Speaker 1: joins us on the phone from New Canaan, Connecticut. Again,
26:41
Speaker 1: they are looking for a five point five percent year
26:43
Speaker 1: of a year increase in retail sales this year based
26:47
Speaker 1: upon a liquid consumer Thanks for listening to Boomberg Markets podcast.
26:53
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
26:56
Speaker 1: or whatever podcast platform you prefer. I'm Monnie Quinn. I'm
27:00
Speaker 1: on Twitter at on e Quinny, and I'm Paul Sweeney.
27:02
Speaker 1: I'm on Twitter at pt Sweeney before the podcast. You
27:05
Speaker 1: can always catch us worldwide at Bloomberg Radio