Latest / Bloomberg Intelligence / 'Missing Inflation' Is Seen In Asset Prices: Shalett

Transcript

'Missing Inflation' Is Seen In Asset Prices: Shalett · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, after that big sell off yesterday,
• 0:22
  Speaker 1: we're seeing markets rebound pretty strongly here with the the
• 0:25
  Speaker 1: SNP up about one percent. We had some good, very
• 0:29
  Speaker 1: good consumer confidence day to come out this morning, so
• 0:31
  Speaker 1: that's clearly supporting the market. To get a sense of
• 0:33
  Speaker 1: kind of where we are right now, we welcome at
• 0:35
  Speaker 1: Lisa Chalotte. She's a chief investment officer Wealth Management and
• 0:38
  Speaker 1: Morgan Stanley. They got like a gazillion dollars under management
• 0:41
  Speaker 1: two point for eight trillion to be more precise. Lisa,
• 0:44
  Speaker 1: thanks so much for joining us on our Bloomberg Interactive
• 0:46
  Speaker 1: Broker studio. So how do you put yesterday in today
• 0:49
  Speaker 1: kind of in context? Because folks out there driving around
• 0:52
  Speaker 1: there saying, wow, yesterday was really ugly, but what's costing
• 0:56
  Speaker 1: today's bounce? Back. Yeah, So yesterday was very much about
• 1:00
  Speaker 1: out a classical global growth scare UH. And we get
• 1:04
  Speaker 1: these every now and then, UH, and they very often
• 1:07
  Speaker 1: lead to market sell offs. And you know, the idea,
• 1:11
  Speaker 1: UH is basically that UH, the nascent rebound that we
• 1:16
  Speaker 1: have potentially we're beginning to see might get curtailed by
• 1:21
  Speaker 1: the spread of coronavirus and and the idea that the
• 1:25
  Speaker 1: rebound that may have begun in China gets stalled. And
• 1:30
  Speaker 1: I think that that's really what the markets were obsessed
• 1:32
  Speaker 1: with yesterday. All that being said, when the dust settles
• 1:36
  Speaker 1: and the markets, UM, you know, sold off. I think
• 1:40
  Speaker 1: there are a lot of investors who believe, UH rightfully
• 1:45
  Speaker 1: that the US is disconnected in many ways from the
• 1:48
  Speaker 1: global economy is kind of UH in oasis. Only nine
• 1:53
  Speaker 1: percent of net GDP, of net trade UH is related
• 1:59
  Speaker 1: UH do DP is related to trade UH, And so
• 2:02
  Speaker 1: in many ways, the US is very much a domestic
• 2:04
  Speaker 1: oriented economy. And so you come into today UH with
• 2:08
  Speaker 1: ample liquidity UM still extraordinary sentiment and positioning people wanting
• 2:14
  Speaker 1: to be long this market. UH, and you get a
• 2:17
  Speaker 1: little piece of data that says the US consumer, which
• 2:19
  Speaker 1: is of the mix, is UM still feeling good. Uh,
• 2:23
  Speaker 1: and people are willing to say, yeah, we're gonna weather
• 2:26
  Speaker 1: this storm to yeah, this storm being a one point
• 2:28
  Speaker 1: six percent decline yesterday and today we're up almost a percent.
• 2:31
  Speaker 1: So uh, these these huge moves are are sort of
• 2:34
  Speaker 1: infantestable and historical perspective, But nowadays, I guess volatility has
• 2:38
  Speaker 1: been killed. But I am curious. Right now we're seeing uh,
• 2:41
  Speaker 1: financial conditions at all time the easiest ever based on
• 2:46
  Speaker 1: a Chicago FED and St. Louis FED measures coming out
• 2:50
  Speaker 1: in the past few weeks. Capex, though continuing to trend lower.
• 2:53
  Speaker 1: US GDP growth still only two percent. I'm trying to
• 2:57
  Speaker 1: square the idea of relatively slow ish growth, lack of
• 3:01
  Speaker 1: wage inflation, lack of capital expenditures on the part of companies,
• 3:06
  Speaker 1: with this incredibly strong job confidence and and just really
• 3:11
  Speaker 1: low jobless rates. What am I missing? These pieces don't
• 3:13
  Speaker 1: seem to go together. Yes, they don't. UM. And so
• 3:17
  Speaker 1: you know what we have very often said is, look,
• 3:20
  Speaker 1: the lack of inflation in the real economy UM has
• 3:22
  Speaker 1: completely shown up in financial asset markets. UM. We know
• 3:26
  Speaker 1: that for the past eleven years we've been in a
• 3:28
  Speaker 1: pretty profound bowl market UM where U s docks have
• 3:32
  Speaker 1: compounded at about four which is two times normal. UM.
• 3:36
  Speaker 1: We think a lot of the provision of FED liquidity,
• 3:40
  Speaker 1: and you noted financial conditions among the easiest they've ever been. UM.
• 3:44
  Speaker 1: That liquidity has found its way to financial assets UH
• 3:48
  Speaker 1: and been recycled not into fundamental capital spending and fundamental
• 3:53
  Speaker 1: capital formation, but into share repurchases and a return of
• 3:56
  Speaker 1: capital UH to UH to shareholders. So there's been the
• 4:00
  Speaker 1: huge wealth transfer UH and many of our clients and
• 4:03
  Speaker 1: certainly investors in the stock markets have benefited from that.
• 4:06
  Speaker 1: But that's where the inflation is UM. In the real economy. UH.
• 4:10
  Speaker 1: The real economy itself has really been struggling over this
• 4:16
  Speaker 1: last decade with UM reasonably weak UH working age population
• 4:20
  Speaker 1: growth UM and reasonably weak productivity growth UH. And so
• 4:24
  Speaker 1: we've kind of been bouncing around this two to three
• 4:27
  Speaker 1: percent UH. And even though we have UM low unemployment UM,
• 4:32
  Speaker 1: we have not seen wage pressures UH. And so as
• 4:36
  Speaker 1: a result, UM, we haven't seen the classical capital for
• 4:40
  Speaker 1: labor substitution effects that you typically get UH end of cycle.
• 4:46
  Speaker 1: What we've seen is companies saying, hey, I can get
• 4:49
  Speaker 1: away with hiring people. I don't really pay them anything.
• 4:51
  Speaker 1: I don't give them wage increases. UM. So I'll just
• 4:54
  Speaker 1: you know, I'll hold them in there as long as
• 4:56
  Speaker 1: as the cycle holds up as good enough. And that's
• 4:59
  Speaker 1: what we've been this good enough. So I'm looking at
• 5:02
  Speaker 1: your tactical asset allocation UH, and the global equities underweight
• 5:07
  Speaker 1: the US but overweight emerging markets international. What's your thoughts
• 5:10
  Speaker 1: behind that? So look, our our thoughts there are really
• 5:13
  Speaker 1: around relative valuation. You know, we've been in at this
• 5:16
  Speaker 1: period as we talked about for the last eleven years
• 5:19
  Speaker 1: where US markets have profound the outperformed um the other regions,
• 5:24
  Speaker 1: and as a result, we have a very very strong
• 5:26
  Speaker 1: US dollar UM. So as we look at relative valuations today, UM,
• 5:31
  Speaker 1: you know, we see the US and and really the
• 5:33
  Speaker 1: top decile of p ratios for the last hundred years,
• 5:37
  Speaker 1: it's it's getting to be an expensive market. UM. We
• 5:41
  Speaker 1: know that on an equity risk premium basis or adjusted
• 5:44
  Speaker 1: for low interest rates, you know, evaluations are not yet extreme.
• 5:48
  Speaker 1: But in terms of nominal ps UM, the US market
• 5:51
  Speaker 1: is really um, you know, getting expensive at at nine
• 5:54
  Speaker 1: times at nineteen times forward. So our view is that
• 5:58
  Speaker 1: as we look into t any the improvement in global
• 6:02
  Speaker 1: growth that we thought was going to come both cyclically
• 6:05
  Speaker 1: and from the trade deal. Really we think has the
• 6:08
  Speaker 1: highest beta outside the US. We just talked about the
• 6:11
  Speaker 1: fact that the US is kind of an isolated economy. Um, well,
• 6:15
  Speaker 1: you can't have it both ways. You can't say, oh,
• 6:17
  Speaker 1: global growth and global trade are gonna pick up and
• 6:19
  Speaker 1: the US is gonna benefit. Um when you just said, hey,
• 6:23
  Speaker 1: you know, the US is its own um story. So, Um,
• 6:26
  Speaker 1: we have favored non US markets this year basically believing
• 6:29
  Speaker 1: that there's more operating leverage and better valuations. How long
• 6:33
  Speaker 1: can this disconnect continue where the inflation really is in
• 6:36
  Speaker 1: assets and not in the real economy. Um. So I
• 6:40
  Speaker 1: think we're starting to approach, um, the point of pain,
• 6:43
  Speaker 1: and and that's where you know, valuations start um, you know,
• 6:47
  Speaker 1: begging uh um, you know belief uh and and our
• 6:52
  Speaker 1: senses were starting to see examples of that. Um. We
• 6:56
  Speaker 1: think you know that the history books are gonna reflect um,
• 7:00
  Speaker 1: you know that we work debacle as maybe you know
• 7:03
  Speaker 1: an example of valuations becoming disconnected. And certainly a lot
• 7:09
  Speaker 1: of folks have said, oh no, no, no, that's just
• 7:11
  Speaker 1: an idiosyncratic situation. But we see examples of it, whether
• 7:15
  Speaker 1: we're looking at um valuations in VC or we're looking
• 7:19
  Speaker 1: at valuations some of the valuations that are being paid
• 7:21
  Speaker 1: in the private equity markets, etcetera. That's fascinating. This is
• 7:26
  Speaker 1: really really interesting, Lisa Chellette, thank you. Apple shares up
• 7:39
  Speaker 1: more than two percent ahead of reporting earnings after the
• 7:42
  Speaker 1: bell today. A lot of questions about just how robust
• 7:45
  Speaker 1: their growth has been, whether it can justify the tremendous
• 7:49
  Speaker 1: rally that we saw last year and some of the
• 7:51
  Speaker 1: estimates that analysts have across Wall Street. But I want
• 7:54
  Speaker 1: to turn our focus to what actually is going on
• 7:57
  Speaker 1: right now and help us do that. As John Butler,
• 7:59
  Speaker 1: Senior tell Services and Equipment analyst for Bloomberg Intelligence, and
• 8:03
  Speaker 1: that is the effect of the coronavirus on its supply chain,
• 8:07
  Speaker 1: which may or may not be in the front and
• 8:09
  Speaker 1: center today as the report earnings. But you think it
• 8:12
  Speaker 1: could be potentially substantial, right I do. I want to
• 8:16
  Speaker 1: stress I view it sort of as a near term risk.
• 8:19
  Speaker 1: So Bloomberg did a great piece last night on m
• 8:23
  Speaker 1: Live blog where they talked about epidemics and the typical
• 8:28
  Speaker 1: bell curve that goes with that. So uh from beginning
• 8:32
  Speaker 1: to peak, it's typically ten weeks, call it two and
• 8:35
  Speaker 1: a half months, and that's sort of the before the
• 8:40
  Speaker 1: number of cases begins to decline. And so my thought
• 8:44
  Speaker 1: in reading that was that that's the risk, that's the
• 8:48
  Speaker 1: window where Beijing could remain proactive about closing down factories,
• 8:54
  Speaker 1: restricting travel and in general doing the right thing, but
• 9:00
  Speaker 1: putting measures in place that could threaten the Apple supply chain.
• 9:03
  Speaker 1: So looking ahead to the coming year for Apple, they
• 9:07
  Speaker 1: reportedly are set to launch a lower cost replacement to
• 9:12
  Speaker 1: the old iPhone. See if you remember that, So it's
• 9:15
  Speaker 1: a lower cost iPhone sort of positioned at the high
• 9:19
  Speaker 1: end of the mid price market, which is a big segment.
• 9:22
  Speaker 1: But if you're gonna launch that in March, you got
• 9:25
  Speaker 1: to start building it in February at the latest. So
• 9:29
  Speaker 1: in my mind, that sets up a near term risk
• 9:32
  Speaker 1: for them. It could lead to a push out of
• 9:34
  Speaker 1: the introduction of that phone, and god, if this whole
• 9:38
  Speaker 1: scenario plays out longer than that ten week peak, then
• 9:43
  Speaker 1: ultimately it could may even threaten the September refresh, although
• 9:48
  Speaker 1: to be clear, I don't see that happening. Um. I
• 9:52
  Speaker 1: think this whole scenario with coronavirus is probably going to
• 9:58
  Speaker 1: play out over a typical bell curve. So John is,
• 10:01
  Speaker 1: as Apple or any other technology companies that have a
• 10:04
  Speaker 1: big president in China, they talked about any supply chain disruptions.
• 10:09
  Speaker 1: They have not, and so I think a lot of
• 10:13
  Speaker 1: people are going to be coming into tonight's Apple report
• 10:16
  Speaker 1: and the earnings call anxious to hear something. I would
• 10:20
  Speaker 1: be amazed if they didn't address it already in China.
• 10:23
  Speaker 1: If you look at the retail store base, they have
• 10:26
  Speaker 1: limited the number of hours those stores are open across
• 10:29
  Speaker 1: all of China. So clearly it's on Apple's mind and
• 10:33
  Speaker 1: they're already taking measures to address the the thread of
• 10:38
  Speaker 1: this virus. All right, So let's get to the big,
• 10:40
  Speaker 1: the big kuna here, which is the earnings, right, the
• 10:44
  Speaker 1: first two trillion dollar company, right. Yeah, it's interesting they're
• 10:48
  Speaker 1: set up for this great year. You know, the iPhone tennis,
• 10:52
  Speaker 1: which sold throughout last year, did not really resonate well
• 10:55
  Speaker 1: with people, and every quarter last year they booked to
• 11:00
  Speaker 1: a double digit decline in iPhone sales. So we have
• 11:04
  Speaker 1: very low hurdle set up for this year. Every quarter
• 11:07
  Speaker 1: this year, and the iPhone eleven that they introduced in
• 11:12
  Speaker 1: September last year has done really well, um by any measure.
• 11:17
  Speaker 1: You know, we're hearing from third party researchers as well
• 11:20
  Speaker 1: as the tech community. Uh, just in general. I'm seeing
• 11:24
  Speaker 1: a lot of it out there, a lot of iPhone
• 11:27
  Speaker 1: elevens in in people's hands. What I think they got
• 11:30
  Speaker 1: so right is they introduced a new camera system. So
• 11:34
  Speaker 1: you've got sort of a hit on your hands, some
• 11:37
  Speaker 1: new devices coming to market and a lot of selfies.
• 11:42
  Speaker 1: He likes the filters, he likes the multiple cameras. I
• 11:45
  Speaker 1: looked at Tom Keene. Tom Keine posts some amazing photos
• 11:48
  Speaker 1: on Twitter from his phone eleven, so he's really been efficient.
• 11:52
  Speaker 1: I just point and pushed a little point. He spends
• 11:55
  Speaker 1: He spends entire radio segments filming said videos. You know,
• 11:59
  Speaker 1: it is interesting though, and it's just the idea of
• 12:02
  Speaker 1: phone camera. I mean, that's essentially what's happening. Cameras have
• 12:07
  Speaker 1: become digital digital. I'm sorry, today's smartphones are digital cameras
• 12:12
  Speaker 1: with a phone app basically, and so the phone is
• 12:16
  Speaker 1: honestly no all kidding aside is it's the most important
• 12:20
  Speaker 1: feature on any smartphone. And I really think Apple did
• 12:24
  Speaker 1: a lights out job with the iPhone eleven. And they
• 12:27
  Speaker 1: lowered the starting price by fifty dollars. So it just
• 12:32
  Speaker 1: has done very well and I think we're gonna hear
• 12:34
  Speaker 1: that tonight and it sets them up for a great
• 12:37
  Speaker 1: year where you have this low bar set from how
• 12:41
  Speaker 1: we performance. How important is that five G story to Apple?
• 12:44
  Speaker 1: A lot of bulls are out there saying this is
• 12:45
  Speaker 1: the next major refresh cycle. I think I think they're right,
• 12:51
  Speaker 1: but I think it's going to play out over a
• 12:53
  Speaker 1: longer period of time than they think. People don't upgrade
• 12:56
  Speaker 1: immediately to the new technology, so if you look at
• 13:00
  Speaker 1: four G, it was sort of a multi year ramp
• 13:03
  Speaker 1: to the point where sat uh not saturation penetration levels
• 13:07
  Speaker 1: in the US we're really meaningful. So I think we'll
• 13:11
  Speaker 1: see the same thing happened this year, where we have
• 13:14
  Speaker 1: a decent year of early adopters. The iPhone five G
• 13:19
  Speaker 1: coming out in September, I think is going to be
• 13:21
  Speaker 1: a popular device, but it will take a couple of
• 13:24
  Speaker 1: years to really get out there, so to speak. I
• 13:27
  Speaker 1: feel like sociologists are going to look at this period
• 13:29
  Speaker 1: of time where it's no longer about the conversation, it's
• 13:32
  Speaker 1: just about how you look. I mean, honestly, I do
• 13:35
  Speaker 1: think that this is going to be a transformation that people,
• 13:37
  Speaker 1: you know, just want to see themselves others, but they
• 13:40
  Speaker 1: don't actually want to have and conversations have gone to
• 13:45
  Speaker 1: texting yes for the most guilty. By the way, John Butler,
• 13:51
  Speaker 1: thanks so much for joining us. John Butler, Senior Telecom
• 13:53
  Speaker 1: Services and Equipment Annals also is the ace on Apple
• 13:57
  Speaker 1: for Bloomberg Intelligence. There is a big question right now
• 14:09
  Speaker 1: as US equity is rebound after yesterday sell off, how
• 14:13
  Speaker 1: will China's market respond in the wake of the closure
• 14:17
  Speaker 1: of the Wuhan City How how big it is it
• 14:19
  Speaker 1: accounts for one point six percent of the total GDP
• 14:23
  Speaker 1: of China, as well as the potential ramifications for JN
• 14:27
  Speaker 1: paying the president of the country. Christopher Balton joining us
• 14:30
  Speaker 1: now Associate professor at Fullbright University, Vietnam. Also a Bloomberg
• 14:34
  Speaker 1: Opinion columnist, joining us from Saigon in Vietnam. Christopher, can
• 14:39
  Speaker 1: you give us just a sense, uh, first of all,
• 14:41
  Speaker 1: just what the response has been like on the ground
• 14:44
  Speaker 1: where you are right now. Um, what we're basically seeing
• 14:48
  Speaker 1: is is that even though it's a typically busy time
• 14:50
  Speaker 1: when people are out in restaurants with families, enjoying Chinese
• 14:55
  Speaker 1: New Year. What we're really seeing is people saying indoors
• 14:58
  Speaker 1: and ordering lots of food and grocery. We're actually seeing
• 15:01
  Speaker 1: reports of heavy buying in in grocery stores UM, and
• 15:06
  Speaker 1: cities working to make sure that they can guarantee residents
• 15:09
  Speaker 1: that they continue to have enough food. People are stocking up,
• 15:13
  Speaker 1: But we're not seeing panic buying from from the people
• 15:16
  Speaker 1: I've been talking to. So it seems that even though
• 15:20
  Speaker 1: the impact on the economy is basically going to be
• 15:23
  Speaker 1: even though people might not be eating at restaurants, they
• 15:25
  Speaker 1: seem to be making sure that they're getting a lot
• 15:27
  Speaker 1: of food UH and doing a lot of online shopping elsewhere. So, Christopher,
• 15:32
  Speaker 1: how important is it for presidents she here to get
• 15:36
  Speaker 1: you know, to handle this successfully, to get it out
• 15:39
  Speaker 1: in front of it? What's the risk for President g
• 15:42
  Speaker 1: with the coronavirus there, there's a lot of risk. And
• 15:46
  Speaker 1: it's it's it's no coincidence that that President Lee was
• 15:51
  Speaker 1: actually appointed to lead the working group on on this
• 15:54
  Speaker 1: issue primarily because it's it's she is does not want
• 15:58
  Speaker 1: to be seen as as in charge of this UH debacle. UM.
• 16:02
  Speaker 1: And I think what you're seeing inside of China right now,
• 16:04
  Speaker 1: and everything that that you're hearing is is that there's
• 16:07
  Speaker 1: deep frustration at the level of competence in handling and
• 16:12
  Speaker 1: really getting out and addressing this um. There was a
• 16:14
  Speaker 1: there was a something that's gone viral on Leach had
• 16:17
  Speaker 1: a very important event where the mayor of Wuhan is
• 16:22
  Speaker 1: holding this UH press conference and he's talking about their
• 16:26
  Speaker 1: their capacity to to make face masks, and he starts
• 16:30
  Speaker 1: off saying, well, we can make one point eight billion,
• 16:32
  Speaker 1: and then it's like, no, it's it's one point uh.
• 16:35
  Speaker 1: It's it's one point zero eight, and then it's uh,
• 16:39
  Speaker 1: and then it goes to an even lower number. And
• 16:41
  Speaker 1: so I think there's this sense among the Chinese public
• 16:44
  Speaker 1: that that their their government is not nearly as competent,
• 16:48
  Speaker 1: and there's a lot of very deep frustration of the
• 16:50
  Speaker 1: government because over the years they have a a history
• 16:54
  Speaker 1: of not handling public health crisis well. And so there's
• 16:58
  Speaker 1: kind of this mounting frustration going to connect the idea
• 17:01
  Speaker 1: that in the US and elsewhere there seems to be
• 17:04
  Speaker 1: a complacency about China's response, and there's been kind of
• 17:07
  Speaker 1: a theme where people say, well, it's so much better
• 17:09
  Speaker 1: than two thousand three when Stars was spreading this seems
• 17:13
  Speaker 1: to actually be proactive. Where where well can you explain
• 17:17
  Speaker 1: that disconnect? Well, it's it's difficult to say because you
• 17:21
  Speaker 1: get so many conflicting responses about what the actual nature
• 17:27
  Speaker 1: of preparedness and China's ability to act. They're clearly acting,
• 17:31
  Speaker 1: that doesn't necessarily mean that they're acting well in in
• 17:35
  Speaker 1: solving the problem. Um, you know, there's there's videos that
• 17:38
  Speaker 1: and and I want to emphasize videos that you see
• 17:41
  Speaker 1: on things like we chat or or other social media platforms.
• 17:45
  Speaker 1: We don't always know how accurate they are, so it's
• 17:48
  Speaker 1: difficult to say, well, are are they acting? You know,
• 17:50
  Speaker 1: there's this there's this video of there's China has made
• 17:54
  Speaker 1: a great fanfare that they're building a new hospital. Well,
• 17:58
  Speaker 1: these types of the construction form that they're using is
• 18:00
  Speaker 1: basically a type of reinforced heavy duty plastic cardboard. Uh,
• 18:05
  Speaker 1: and they use these on Chinese construction sites. And so
• 18:09
  Speaker 1: it's not really like a quality construction. There's not gonna
• 18:11
  Speaker 1: be air filtering and sanitation standards and things like that.
• 18:15
  Speaker 1: But they've clearly gone to the trouble of building something
• 18:18
  Speaker 1: that they can put people in. So it's very very
• 18:21
  Speaker 1: difficult to disentangle what is actually helping uh with regards
• 18:25
  Speaker 1: to what China is doing and what is just action
• 18:27
  Speaker 1: for the sake of appearing busy. Christopher, is it worthwhile
• 18:31
  Speaker 1: making the analogy two stars as it relates to the
• 18:35
  Speaker 1: potential impact on the Chinese economy which was material at
• 18:39
  Speaker 1: the time? Um, I think it's still in a way
• 18:44
  Speaker 1: very early, too early to to say with with significance.
• 18:48
  Speaker 1: I think the first crack that we've really seen in
• 18:50
  Speaker 1: how big an impact it's going to have on the
• 18:53
  Speaker 1: economy is China has announced that they're actually pushing back
• 18:57
  Speaker 1: the return to return to work date by one week.
• 19:00
  Speaker 1: At the moment, um, I wouldn't be surprised if that
• 19:03
  Speaker 1: flips another week or two. Um So, I think it's
• 19:06
  Speaker 1: still really too early to just start making solid comparisons
• 19:10
  Speaker 1: to stars or really anything else, because this is just
• 19:13
  Speaker 1: so unprecedented at the moment. There's also an idea that
• 19:17
  Speaker 1: Wuhana is a very big city, but it only accounts
• 19:19
  Speaker 1: for one point six percent of China's entire GDP. Is
• 19:23
  Speaker 1: the potential impact on the economy much greater Based on
• 19:27
  Speaker 1: Wuhan's rule in terms of a node of transportation and
• 19:32
  Speaker 1: manufacturing and a part of supply chains of companies both
• 19:35
  Speaker 1: locally and internationally. Yes, absolutely, it's it's it's kind of
• 19:41
  Speaker 1: like right in the middle in the center of China.
• 19:44
  Speaker 1: It's it's a big rail hub, lots of manufacturing. And
• 19:48
  Speaker 1: so what you've really seen is you've seen these you know,
• 19:50
  Speaker 1: as people leave. And so when when this happened, right
• 19:54
  Speaker 1: as people were leaving for Chinese New Year and so on,
• 19:56
  Speaker 1: on some days, there were estimates that more than a
• 19:58
  Speaker 1: million people we're leaving the city of Wuhan in a
• 20:02
  Speaker 1: specific day. And if you've ever been in a city,
• 20:05
  Speaker 1: a major Chinese city during Chinese New Year, you can
• 20:07
  Speaker 1: have these cities that you know, of a fifteen million
• 20:10
  Speaker 1: people that will literally you know, fifty in the population
• 20:13
  Speaker 1: will leave. Um. That that's not that's not a crazy number.
• 20:16
  Speaker 1: And imagine if Manhattan was suddenly fifty smaller by population
• 20:20
  Speaker 1: um and dispersed all over the Eastern seaboard. That's kind
• 20:23
  Speaker 1: of what we're talking about with Wuhan. And so all
• 20:26
  Speaker 1: of a sudden, the risk that that virus gets transported
• 20:29
  Speaker 1: all over the Eastern Seaboard, or in this case, all
• 20:32
  Speaker 1: over China is much much greater and a very real possibility. Christopher,
• 20:37
  Speaker 1: you're on the ground in Saigon in Vietnam right now.
• 20:39
  Speaker 1: What's the feeling there. Um, there's absolutely lots of precautions
• 20:45
  Speaker 1: being taken. I was actually at a health facility today
• 20:47
  Speaker 1: on an on an unrelated matter, UM, and they had
• 20:50
  Speaker 1: actually set up a tent outside of the facility where
• 20:54
  Speaker 1: they were checking people. Everybody was given a mask and
• 20:57
  Speaker 1: it was mandatory. UM. There was of course all types
• 21:01
  Speaker 1: of all nature of sanitation available to people around. UM.
• 21:06
  Speaker 1: They're absolutely tracking uh, any travelers that have been to
• 21:10
  Speaker 1: China recently. UM. It's absolutely a lot of concern, but
• 21:13
  Speaker 1: I think they're they're absolutely on top of things and
• 21:16
  Speaker 1: tracking people that need to be tracked. Christopher Balding, thanks
• 21:20
  Speaker 1: so much for that on the ground UH commentary. We
• 21:22
  Speaker 1: really appreciated. Chris Balding, Associate Professor Fulbright University in Saigon, Vietnam.
• 21:27
  Speaker 1: He's also Bloomberg Opinion Commism. Let's take a look at
• 21:39
  Speaker 1: the coronavirus and how it relates to the global energy markets.
• 21:42
  Speaker 1: We saw let's sell off in oil over the last
• 21:46
  Speaker 1: several sessions and really off from the peak of early January.
• 21:50
  Speaker 1: Here w T I today just to quote that that's
• 21:53
  Speaker 1: actually staging a little bit of a rebound today up
• 21:55
  Speaker 1: about one per cent. Do you get a sense of
• 21:57
  Speaker 1: kind of global oil markets and the driver's on the
• 22:00
  Speaker 1: supply and demand side. We welcome John killed Off, founding
• 22:03
  Speaker 1: partner of Again Capital. So, John, how are you thinking
• 22:06
  Speaker 1: about global oil markets given some of these issues as
• 22:10
  Speaker 1: it relates to the coronavirus as well as some other
• 22:12
  Speaker 1: geopolitical issues globally, well on the demand side of the
• 22:16
  Speaker 1: equation right now, there's just a tremendous fragility as a
• 22:19
  Speaker 1: result of this outbreak of the coronavirus. UM. You know,
• 22:23
  Speaker 1: a lot of us were dusting off the charts from
• 22:26
  Speaker 1: two thousand three when the stars epidemic hit and oil
• 22:29
  Speaker 1: took quite a hit. Then oil prices were basically just
• 22:31
  Speaker 1: about cut in half UM from about thirty eight dollars
• 22:34
  Speaker 1: a barrel danto almost five, So quite a bit of
• 22:38
  Speaker 1: a sell off because you know, when I talk to
• 22:40
  Speaker 1: you guys about the price dynamic, it's always Asia, Asia,
• 22:44
  Speaker 1: Asia and China in particular. UM. You know, there was
• 22:47
  Speaker 1: had been some hope that they were getting back on
• 22:49
  Speaker 1: their feed economically after the at least the partial resolution
• 22:53
  Speaker 1: of the U S. China trade war and now this
• 22:55
  Speaker 1: hits and it's just uh, you know, skewing the demand
• 22:59
  Speaker 1: growth back to down to flat, if not down on
• 23:03
  Speaker 1: the year, because this is still early days. If you
• 23:06
  Speaker 1: ask me, I don't quite understand the rush to say
• 23:09
  Speaker 1: the oil clear has been sounded. Here what we're seeing
• 23:11
  Speaker 1: in the stock market today and and even oil to
• 23:13
  Speaker 1: a degree, We've got a long way to go on this,
• 23:15
  Speaker 1: you know, I want to pick up on that, because
• 23:16
  Speaker 1: we are seeing a rally in equities almost completely erasing
• 23:20
  Speaker 1: yesterday's declines at this point if it continues throughout the day.
• 23:23
  Speaker 1: But oil it's just flat, I mean essentially, I mean
• 23:27
  Speaker 1: it's it's a little up. We're not seeing that big
• 23:29
  Speaker 1: of a price gain. What's going to tip the scales
• 23:31
  Speaker 1: one way another? It's one percent, but still after losing
• 23:34
  Speaker 1: what more than ten dollars in the past month. This
• 23:37
  Speaker 1: is this is not um massive what will tip the
• 23:40
  Speaker 1: scales one way or another in order to determine whether
• 23:44
  Speaker 1: there's another substantial like lower the price of oil. Yeah,
• 23:47
  Speaker 1: and then at least, if you think about it, we've
• 23:49
  Speaker 1: actually retraced or so of the of the gains from
• 23:52
  Speaker 1: the October lows. That got it that we saw, we
• 23:54
  Speaker 1: got as high as sixty dollars on the on the
• 23:57
  Speaker 1: most intense ran fears. Um, what's going to tip us
• 24:01
  Speaker 1: to the downside here is if it is that we
• 24:04
  Speaker 1: don't get another further response out of OPEC and Russia. Uh.
• 24:09
  Speaker 1: They were already been on the wires that this has
• 24:11
  Speaker 1: gotten their attention. I can tell you that they've been
• 24:13
  Speaker 1: talking about it already about potentially extending their current deal
• 24:17
  Speaker 1: to June. At least they're gonna have to go longer
• 24:19
  Speaker 1: than that, and they're gonna have to cut more if
• 24:21
  Speaker 1: they want to support this price. The big line in
• 24:24
  Speaker 1: the stand, the first line of the stand here and
• 24:26
  Speaker 1: we saw it yesterday get tested was down around was below,
• 24:30
  Speaker 1: but really fifty dollars if you go back several years,
• 24:32
  Speaker 1: that has been the number that has held up. Um.
• 24:36
  Speaker 1: There's a tendency to think it will hold up again
• 24:38
  Speaker 1: because you will get a response from some of the producers.
• 24:40
  Speaker 1: But if we break that, then you're you're looking at
• 24:43
  Speaker 1: significant uh more downside to the low forties uh in
• 24:47
  Speaker 1: pretty rapid fashion. So, Jeff, what's the thinking as it
• 24:49
  Speaker 1: relates to OPEC and it relates to the supply side
• 24:52
  Speaker 1: of the equation, is there a growing determination to support
• 24:57
  Speaker 1: global oil prices or we just don't have that coordination
• 24:59
  Speaker 1: in than opaque and OPEC. Plus you know, it's it's
• 25:03
  Speaker 1: aspirational on their part. I can tell you that, particularly
• 25:06
  Speaker 1: Saudi's who you know, you finally got that a ramco
• 25:10
  Speaker 1: I p O out the door. They've been watching that
• 25:12
  Speaker 1: stock price come down as the price of oil comes down.
• 25:15
  Speaker 1: So I just want to remind people if you're looking
• 25:17
  Speaker 1: to buy into that at some point or in some shape, way,
• 25:19
  Speaker 1: shape or form, you've got tremendous exposure to the crude commodity,
• 25:24
  Speaker 1: So be careful with that. There's no silver bullet there
• 25:26
  Speaker 1: with that company. And um so they're they're gonna try.
• 25:30
  Speaker 1: I mean that they were on the wires all weekend,
• 25:32
  Speaker 1: uh making noise about about addressing this this slide, and
• 25:35
  Speaker 1: even actually by chastising the analyst community for being overreactive
• 25:40
  Speaker 1: and too aggressive on the on the on the demand
• 25:43
  Speaker 1: outlook cuts, which which is impacting the price. So I
• 25:46
  Speaker 1: thought that was an interesting thing on their part that
• 25:48
  Speaker 1: shows you how and engage they are with the price
• 25:51
  Speaker 1: of the commodity these days. So, but there's a sense
• 25:54
  Speaker 1: in the market that it's just beyond their grasp. There's
• 25:57
  Speaker 1: too much US soil, there's too much US exports, and
• 26:00
  Speaker 1: is even moril coming on from different spots that's also
• 26:02
  Speaker 1: helping to keep these global markets rather well supplied. John Kilduff,
• 26:07
  Speaker 1: thank you so much for the perspective. John Kilduff is
• 26:09
  Speaker 1: uh the founding partner of Again Capital. Thanks for listening
• 26:13
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 26:15
  Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
• 26:18
  Speaker 1: platform you prefer. I'm Paul Sweeney. I'm on Twitter at
• 26:21
  Speaker 1: pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at
• 26:24
  Speaker 1: Lisa Abram Woyds. One. Before the podcast, you can always
• 26:27
  Speaker 1: catch us worldwide. I'm Bloomberg Radio