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Earnings, IMF, ETFs, and Autos (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Fund The Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. All right, we got
0:21
Speaker 1: earnings kicking off later this week. We want to get
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Speaker 1: a sense from some professionals like, how should we think
0:27
Speaker 1: about these these earnings? What should we be looking for?
0:31
Speaker 1: What are the risks out there? So let's bring in
0:33
Speaker 1: Gina Martin Adams. She's our chief strategist at Bloomberg Intelligence
0:37
Speaker 1: and she joins us here on our Bloomberg Interactive Broker studio.
0:39
Speaker 1: So we appreciate that you get the gold star. You know,
0:42
Speaker 1: we've dealt with a lot until last time we talk
0:44
Speaker 1: to you. It seems like it's been a little bit Gina.
0:46
Speaker 1: We've had a banking crisis, we've had a FED continuing
0:49
Speaker 1: to raise rates, market pricing in rate cuts. Let's get
0:54
Speaker 1: back the fundamentals stocks earnings. What are you looking for
0:58
Speaker 1: this earnings period? Well, I think it's going to be
1:00
Speaker 1: a pretty ugly earning season. Remember, at the beginning of
1:02
Speaker 1: the year, analysts we're anticipating about a two percent drop
1:05
Speaker 1: in first quarter earnings. They're now anticipating an eight percent decline.
1:09
Speaker 1: They are also anticipating at least a three quarter earnings
1:13
Speaker 1: recession that began with a fourth quarter of twenty twenty
1:15
Speaker 1: two will extend through the first half of this year.
1:17
Speaker 1: At the very least, probably by the end of earning season,
1:21
Speaker 1: we'll find that it will be a full four quarter
1:22
Speaker 1: earnings recession extending through the third quarter, because the third
1:25
Speaker 1: quarter estimate is on the verge of decline already. Wait,
1:27
Speaker 1: these are your analysts. Is this is the consensus of
1:30
Speaker 1: Wall Street analysts? Ah, well, what do you think. Look,
1:34
Speaker 1: our model says we get a five percent earnings contraction
1:37
Speaker 1: that was as of Our model is suggesting we were
1:39
Speaker 1: headed into earnings recession as early as the middle of
1:41
Speaker 1: last year. It currently says somewhere between a five and
1:44
Speaker 1: seven percent earnings contraction overall on a trailing twelve month basis.
1:48
Speaker 1: If you look at the trailing twelve month numbers as
1:50
Speaker 1: implied by the analyst consensus, it's closer to a three
1:52
Speaker 1: and a half percent earnings recession. That's very similar to
1:56
Speaker 1: the twenty fifteen twenty sixteen earnings recession, which was a
1:59
Speaker 1: midscal recession, but certainly very light relative to your typical
2:03
Speaker 1: earnings recession was about fifteen percent. I think what everyone
2:07
Speaker 1: is struggling with right now, as everyone says the market
2:10
Speaker 1: is fully unprepared for this recession. Unfortunately, I think that
2:13
Speaker 1: the timing is a little bit messy because as of October,
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Speaker 1: our models would suggest actually the market was pricing for
2:21
Speaker 1: up to a fifteen percent recession emerging in twenty twenty three,
2:24
Speaker 1: so we already priced the earnings down draft that we're
2:28
Speaker 1: going through right now. You have to get to a
2:30
Speaker 1: point where the consensus capitulates so far, so fast that
2:35
Speaker 1: they're now starting to say, look, this could be even
2:37
Speaker 1: worse than fifteen percent before the market even need go
2:40
Speaker 1: lower than it was in October. And I think that
2:43
Speaker 1: that is what is creating a lot of confusion on
2:45
Speaker 1: the part of investors is are we ready for this?
2:48
Speaker 1: Are we not ready for this? I think the market
2:50
Speaker 1: is very well prepared for this, and that's why it's
2:53
Speaker 1: been able to look through a lot of this weakness,
2:55
Speaker 1: so stocks can perform. The market can perform in a
2:58
Speaker 1: period where earning are coming down yep, And essentially we
3:03
Speaker 1: already priced this in, We've already dealt with it, and
3:05
Speaker 1: we've already recovered on the market, even though you haven't
3:07
Speaker 1: seen it hit the street. Two conditions that need to
3:10
Speaker 1: happen that we need to see happen for that to
3:13
Speaker 1: remain the base case. The first is estimate revision momentum
3:17
Speaker 1: cannot go lower than it was in October. So intriguingly,
3:21
Speaker 1: estimate revisions reached the worst of their worst momentum in
3:25
Speaker 1: the October November time period as well, So even though
3:27
Speaker 1: analysts are marking down expectations, they're not marking them down
3:30
Speaker 1: as fast as they were in October and November, and
3:32
Speaker 1: that momentum is really critical to driving price. So yes,
3:36
Speaker 1: you can absolutely see earnings continue to remain weak, and
3:39
Speaker 1: as a matter of fact, on average, stock prices bottom
3:41
Speaker 1: two quarters before earnings ultimately find their bottom. We can
3:45
Speaker 1: continue to see earnings remain weak in stock prices move higher,
3:48
Speaker 1: but we need to see that momentum remain a little
3:50
Speaker 1: bit less bad, if not start to improve. The second
3:54
Speaker 1: thing that is absolutely critical to maintaining I think market
3:57
Speaker 1: momentum going forward is these do need to continue to
4:01
Speaker 1: cut cost to the point where we can get confident
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Speaker 1: that margins will bottom in the first half of this year.
4:07
Speaker 1: This is something we've been talking about since twenty twenty one.
4:09
Speaker 1: When margin weaknesses started to emerge on the index. It
4:12
Speaker 1: was a very critical sign of weakness coming for the
4:15
Speaker 1: index itself, and we need to see margins bottom. Now.
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Speaker 1: The analyst consensus says, hey, margins are going to bottom
4:21
Speaker 1: in the first quarter. We're going to see the worst
4:23
Speaker 1: of the worst in the first quarter. It's going to
4:24
Speaker 1: get slightly less bad going into the second quarter, in
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Speaker 1: the third quarter because finally all these cost pressures are
4:29
Speaker 1: starting to abate, and that is really quite a critical
4:33
Speaker 1: to forming that ultimate earnings turn around to twenty twenty four.
4:36
Speaker 1: Who don't get enough cost cuts. It's a problem when
4:39
Speaker 1: you look across the university of companies that you and
4:41
Speaker 1: Bloomberg Intelligence covers, do you see that happening? I mean,
4:45
Speaker 1: you can tell right before you really get earnings if
4:48
Speaker 1: they fired enough people, if they've so it has it happened.
4:52
Speaker 1: It has happened for some sectors. It has absolutely happened
4:55
Speaker 1: within the communication services space. This is at the forefront
4:58
Speaker 1: of everything. This is the world, This is Paul's comfort zone.
5:02
Speaker 1: These are the companies that are really at the forefront
5:04
Speaker 1: of this. Yeah, even though this used to be a
5:08
Speaker 1: meta free zone. Yeah, trying to get with the kids.
5:10
Speaker 1: You can't help himself. Netflix, those Disneys of the world.
5:13
Speaker 1: Those companies were at the forefront of the massive margin
5:16
Speaker 1: problems that emerged in twenty twenty one. They are now
5:19
Speaker 1: at the forefront of finding some margin lows through their
5:21
Speaker 1: cost cunning endeavors. You're also seeing tech start to get
5:25
Speaker 1: in on this game some select consumer discretionary stocks. We're
5:29
Speaker 1: not seeing it end mass, and we may need to
5:32
Speaker 1: see it in mass before we can really create that
5:35
Speaker 1: margin low. You know, you've had very few layoffs in
5:37
Speaker 1: the financial sector, very few layoffs and industrials there are some,
5:41
Speaker 1: but perhaps not enough to create those really solid margin lows.
5:45
Speaker 1: I would anticipate we continue to hear more news about
5:48
Speaker 1: layoffs over the JIL. Corporate America has more work to
5:50
Speaker 1: do into Q two. As your mentor, yeah, I think
5:52
Speaker 1: a little bit more. They also have a lot of
5:55
Speaker 1: cost rationalization they can do, though, just in just general
5:58
Speaker 1: marketing and expenditure you know, the general expenses can come
6:01
Speaker 1: down as well, which would help that operating leverage. I
6:04
Speaker 1: think the investor relations people like across the corporate America
6:07
Speaker 1: have said to their CFOs and CEOs, cost cuts the
6:10
Speaker 1: market likes, oh yeah, yeah, the stocks go up when
6:12
Speaker 1: you talk about cutting costs. That's kind of the market
6:15
Speaker 1: right now, as opposed to the market wants to see
6:17
Speaker 1: top line both. So anyway, Gina has been talking about
6:20
Speaker 1: and her team I've been talking about watch those margins
6:22
Speaker 1: for years and been spot on there. Gina Martin Adams,
6:26
Speaker 1: chief equity strategist for Bloomberg Intelligence, joining us here in
6:29
Speaker 1: our Bloomberg Interactive Broker Studio again. Ernie's kicking off later
6:32
Speaker 1: this week and we'll have full coverage from the bi analysts,
6:34
Speaker 1: from the strategists, and from external analysts, as well as
6:37
Speaker 1: some Sweet Suite people coming in as well. You're listening
6:42
Speaker 1: to the team can'ser Line program, Bloomberg Markets weekdays at
6:46
Speaker 1: ten am Eastern, Bloomberg dot Com, the I Heard Radio app,
6:49
Speaker 1: and the Bloomberg Business app. We're listening on demand wherever
6:52
Speaker 1: you get your podcast. We got interest rates rising early
6:58
Speaker 1: over the last twelve months. A rate we've never seen before.
7:01
Speaker 1: That can't be good for real estate. So how do
7:03
Speaker 1: you in your world look at real estate today? What's
7:07
Speaker 1: your call? First of all, Paul Mcko morning, thank you
7:11
Speaker 1: again for having me. You're talking about our home Green Street.
7:16
Speaker 1: I hear the kind of David here. I'm fine. Oh okay,
7:20
Speaker 1: there we go. Headphone problem, David, We hear you. Good
7:23
Speaker 1: man sound check successful sound check before the show. Um,
7:31
Speaker 1: you know and appreciate the Green Street mentioned my farm
7:34
Speaker 1: home and yeah, you're right. Definitely the pre eminent reet
7:38
Speaker 1: and research shop. You know, when we talk about the
7:40
Speaker 1: current environment of reets in a rising at just rate environment,
7:43
Speaker 1: my approach is to focus on the fundamentals. We are,
7:46
Speaker 1: you know, with us focused on the residential reet income
7:49
Speaker 1: et FR ticker as house h a US. We're looking
7:53
Speaker 1: at the residential reads focused on that rental income. So
7:56
Speaker 1: from a fundamental perspective and a strong employe in an
8:00
Speaker 1: environment that we're experiencing, the rent is paid. A lot
8:04
Speaker 1: of the rental players have tailwords in their favor, which
8:07
Speaker 1: should lead to a pretty decent first quarter earning season
8:11
Speaker 1: for many of these single family rental players. The multifamily
8:15
Speaker 1: reats and other players that are in the sector. Well,
8:18
Speaker 1: so everything's good now, but what happens when they have
8:21
Speaker 1: to refi at these rates, Well, that's a great question, Matt.
8:27
Speaker 1: And you know what's interesting is we published a blog
8:30
Speaker 1: recently looking at the balance sheets of our top ten constituents,
8:34
Speaker 1: and what we've noticed is that, first of all, we're
8:36
Speaker 1: operating in a ten year environment right now, looking at
8:39
Speaker 1: my Bloomberg of three forty two, much different than what
8:42
Speaker 1: we experienced during COVID, when the ten year was training
8:45
Speaker 1: around one and a half percent, Much different than just
8:47
Speaker 1: a few months ago when we were training near four percent.
8:50
Speaker 1: And so, as a result, because of what happened during COVID,
8:53
Speaker 1: many of these reats were able to take advantage of
8:55
Speaker 1: basically unprecedented lending conditions to really well capitalize their balance sheets.
9:00
Speaker 1: And then our blog that I mentioned, we talk about,
9:03
Speaker 1: you know, the top ten holdings are looking at their
9:05
Speaker 1: debt maturities pretty much across the board. We say that
9:08
Speaker 1: right now, for our guys, right now, the average debt
9:11
Speaker 1: maturity over the next three years, it's about twenty percent
9:14
Speaker 1: of the stack. No more company is rolling more than
9:16
Speaker 1: thirty percent over the next three years. We say, right now,
9:20
Speaker 1: the weighted average debt maturity is about eight years with
9:24
Speaker 1: an average weighted interest rate about three points six percent
9:26
Speaker 1: of pretty much right online. With the tenure where we're
9:29
Speaker 1: at right now. Result, you know, with many of these guys,
9:32
Speaker 1: you know, predominantly with fixed rate debt, I don't see
9:36
Speaker 1: it being into at this point, and hopefully by the
9:38
Speaker 1: time that it really comes into play, we will see
9:40
Speaker 1: you know, federal reserve interest rates being in a more
9:42
Speaker 1: manageable level. And David, I know you guys focus on
9:45
Speaker 1: a residential real estate biz. So that's regional big time Reasonal,
9:51
Speaker 1: I guess the pandemic has just exacerbated the regional differences.
9:54
Speaker 1: So is it just as simple as go along the
9:58
Speaker 1: sun Belt? You know, I wish they were that simple,
10:01
Speaker 1: because if that was the answer, Matt, you and I'd
10:03
Speaker 1: be traveling cross country on my G five, going to
10:06
Speaker 1: see all the shows we want to see. Unfortunately, you know,
10:11
Speaker 1: first of all, location matters. You know, we have firms
10:14
Speaker 1: that are out there, we all see them every day,
10:17
Speaker 1: Coast Stars, Zilo, Real Page, redfin et cetera. That are
10:19
Speaker 1: telling where those migration trends are going. And one of
10:23
Speaker 1: the key takeaways here is that if you were called
10:25
Speaker 1: during COVID, pretty much there was this massive exodus from
10:29
Speaker 1: the coast, from New York, San Francisco, LA. And what
10:32
Speaker 1: we're seeing, especially out of companies like F six, which
10:34
Speaker 1: is a West Coast based apartner route, people are coming back.
10:38
Speaker 1: And so as a result, though the Sun Belt remains
10:40
Speaker 1: very resilient, you are seeing pockets of strength happen again
10:44
Speaker 1: back in certain parts of New York City, San Francisco, LA,
10:47
Speaker 1: some of the southern parts of California where there are
10:50
Speaker 1: tenants that are moving back into those properties. Interesting. So
10:53
Speaker 1: people are well capitalized, they got right with race during Zerpe,
10:59
Speaker 1: and the tenants are moving back into the you know,
11:05
Speaker 1: properties they abandoned on the coasts. What about costs? You know,
11:10
Speaker 1: we were just talking with Gina Martin Adams from Bloomberg
11:13
Speaker 1: Intelligence and she was saying, the market, you know, broadly
11:18
Speaker 1: priced in or accession last year, and so we just
11:22
Speaker 1: need to see that hit the street. But the only
11:25
Speaker 1: concern she has when we get earnings this quarter is
11:28
Speaker 1: that companies need to deal with costs. They should hopefully
11:31
Speaker 1: already have taken care of them, but maybe they had
11:33
Speaker 1: need to into the second quarter. What about reets. Great question,
11:37
Speaker 1: and obviously Gina always delivered the goods when she's either
11:41
Speaker 1: on TV or radio. Super you know, top guests for
11:43
Speaker 1: me to follow up on. You know, a couple of
11:46
Speaker 1: takes here from a cost perspective that is always in
11:50
Speaker 1: the wheelhouse of every single reef management team trying to
11:53
Speaker 1: focus on can we maximize our revenues through growth? And
11:57
Speaker 1: how can we minimize our expenses through a spect control
12:00
Speaker 1: of about utilizing smart technology a Podding concept, you know,
12:04
Speaker 1: a Podding concept would be, let's say you have three
12:07
Speaker 1: residential properties within a two mile radius. You could use
12:10
Speaker 1: let's say one or two maintenance guys across all three properties,
12:14
Speaker 1: opposed to planting one at each location. So I think
12:18
Speaker 1: with these guys focused on trying to minute maximize the
12:21
Speaker 1: bottom line, the NI number, you know, that's expense control
12:25
Speaker 1: plays into it. But from a very high level. You know,
12:28
Speaker 1: right now, the rental market remains strong. You're talking about
12:31
Speaker 1: thirty your mortgage rates that are above seven percent. Housing
12:34
Speaker 1: affordability is out the window, especially if you're in one
12:37
Speaker 1: of these desirable markets. So for those factors alone, that
12:41
Speaker 1: benefits the rental landlord. Remember we're focused on rental income.
12:47
Speaker 1: That rental income that you pay to the landlord as
12:50
Speaker 1: your monthly rent payment goes into investors pockets in the
12:53
Speaker 1: form of dividend income. And that's what we're focused on,
12:56
Speaker 1: is the rent goes up, that dividend hopefully should go
12:59
Speaker 1: up at the end of the day as well. So
13:01
Speaker 1: I'm looking just at the SP five real Estate Investment
13:04
Speaker 1: Trusts index, and year to date it's kind of flat
13:07
Speaker 1: up a little bit. Where are the riets stocks relative
13:10
Speaker 1: to say navs right here's or value in rates or
13:15
Speaker 1: in a rising in real real estate or a rising
13:17
Speaker 1: interest rate environment, just maybe don't want to get near them.
13:21
Speaker 1: Let me get a little pedestal here and give you
13:23
Speaker 1: the four one one on four to eleven. There, public
13:26
Speaker 1: traded roets are trading at a massive discount to net
13:30
Speaker 1: asset value. That soundlike some of the private vehicles that
13:33
Speaker 1: are out there talking about them trading at premiums to
13:36
Speaker 1: net asset value. Historically though, and if you go back
13:39
Speaker 1: to some mayreet the National Association or real Estate Investment
13:42
Speaker 1: trust some of data over the long term and rising
13:46
Speaker 1: periods of rising interest rates. Rates are the sector that
13:50
Speaker 1: you want to be invested in, you know, Traditionally, reets
13:53
Speaker 1: have been that usual go to during flights to safety
13:57
Speaker 1: because again of that dividend income stream, and so you know,
14:01
Speaker 1: until we do see a major reset in this interest
14:04
Speaker 1: rate environment, we're focused on those strong pockets and fundamentals,
14:08
Speaker 1: you know. Taking it outside of residential, there's a reason
14:11
Speaker 1: why company sectors of industrial reefs or different rets and
14:16
Speaker 1: tower reefs continue to remain very strong because these are
14:19
Speaker 1: properties and sectors that are being used every single day.
14:23
Speaker 1: Self storage there's a there's a merger that's going on
14:25
Speaker 1: right now between extra Space Storage or tickers EXR and
14:29
Speaker 1: Light Life Space Storage tick LSI, and so there's some
14:33
Speaker 1: tail ones in that storage space. Remember we're all holding
14:36
Speaker 1: more and more stuff. You know, Matt, I can't go
14:38
Speaker 1: to a show without buying another T shirt or a magnet.
14:41
Speaker 1: So you know, that just adds up into the storage unit.
14:44
Speaker 1: And so as a result, these are sectors that are
14:46
Speaker 1: just going to continue to grow. It's those other sectors
14:49
Speaker 1: that are right now. You know, everybody tech heres about
14:52
Speaker 1: offices and malls and what's the long term future for
14:55
Speaker 1: those sectors. I wish I knew the answer to that,
14:58
Speaker 1: but I can tell you that they're definitely long road
15:01
Speaker 1: ahead for residential reefs as far as that, you know,
15:04
Speaker 1: maintained strength. Don't get me started on malls, dude, When
15:09
Speaker 1: we recently got the summer tour schedule, what are the
15:13
Speaker 1: what are the must see shows? What are the shows
15:15
Speaker 1: that you can't miss? Are you coming back to MSG?
15:19
Speaker 1: I'm hopeful to be at ALL seven MSG. I will
15:22
Speaker 1: be seeing my two hundred show next week at the
15:24
Speaker 1: Hollywood Bowl in La. Sorry, we can't be together, but
15:28
Speaker 1: if all goes well, yes you will. I will be
15:30
Speaker 1: at ALL seven at MSG again. Vernado, you know, big
15:34
Speaker 1: New York office and plaza, big major redevelopment going on
15:38
Speaker 1: in the area. Currently on pause, I believe, But you know, again,
15:41
Speaker 1: it's hard. You can't walk around New York City without
15:43
Speaker 1: being hit in the face. Buyer reets at pretty much
15:45
Speaker 1: every single intersection. All right, David, good stuff. Appreciate that.
15:49
Speaker 1: David auerback, managing director at Armada ETF Advisors. So you
15:52
Speaker 1: were talking fish fish. I want to an amazing fish
15:57
Speaker 1: show with David and I guess I hope I'll be
16:02
Speaker 1: doing it again. And they just tour all the time,
16:05
Speaker 1: just like the Dead did they tour? Yeah? Pretty much.
16:08
Speaker 1: I mean they've had hiatuses. I don't know the plural
16:10
Speaker 1: of netword, but they're on tour again and I'm ssighted
16:14
Speaker 1: to see them this summer. This is the last summer
16:16
Speaker 1: for the Deadenco. By the way, is that right? If
16:17
Speaker 1: you want to see Bobby and Mickey play with John Mayer?
16:22
Speaker 1: This is it? All right? I'll make a note. All right,
16:23
Speaker 1: very good this mister Weir. By the way, do we
16:26
Speaker 1: not believe he's seventy seven? Maybe you're listening to the
16:30
Speaker 1: tap Can's are Live program Bloomberg Markets weekdays at ten
16:34
Speaker 1: am Eastern on Bloomberg Radio, tune in app, Bloomberg dot Com,
16:38
Speaker 1: and the Bloomberg Business App. You can also listen live
16:41
Speaker 1: on Amazon Alexa from our flagship New York station. Just
16:44
Speaker 1: say Alexa play Bloomberg eleven thirty. All right, we got
16:49
Speaker 1: some m and A out there, folks. Gold Giant numont
16:53
Speaker 1: raises new Newcrest bid to nineteen point five billion dollars.
16:57
Speaker 1: Some movement there in the gold space. Grant's spa, Spora?
17:01
Speaker 1: How do I do that? Grant? Grant? How do I
17:02
Speaker 1: pronounce your last name? Spora? It's Spora. Yes, he's a
17:07
Speaker 1: metals of Mining Senior an also Bloomberg Intelligence. So Grant
17:10
Speaker 1: talk to us about this, uh, you know Newmont deal
17:14
Speaker 1: for Newcrest, what's going on there? M yeah, thank you
17:17
Speaker 1: for having me on. Firstly, in the gold space, I
17:20
Speaker 1: mean they're two drivers for M and A. One is,
17:24
Speaker 1: every year these gold companies eat up their reserves and resources,
17:27
Speaker 1: and if you're of a certain scale, you really struggle
17:31
Speaker 1: to replace those reserves and resources. So the one way
17:34
Speaker 1: to do that quickly and you know arguably well it
17:38
Speaker 1: depends on your valuation, but hopefully not too expensively is
17:41
Speaker 1: through M and A. So that's the one reason. And
17:45
Speaker 1: in this case Newcrest does have a particularly good or
17:49
Speaker 1: large reserve base. Um, so that's what Newmont are after.
17:54
Speaker 1: And the second reason, or the second rational is there
17:59
Speaker 1: is a school of thought it's the bigger you get
18:01
Speaker 1: in gold, the more you likely to attract the generalist shareholder,
18:07
Speaker 1: as opposed to staying in an inner sector, which is
18:10
Speaker 1: often perceived by mainstream investors as a bit niche. So
18:15
Speaker 1: you know, if you become the let's say, the the
18:17
Speaker 1: Xon of the gold sector, that'll that'll get you a
18:21
Speaker 1: premium because people will naturally gravitate towards you, so that
18:26
Speaker 1: both of these are at play here. For for new
18:29
Speaker 1: month's bid for New Crest, so nonetheless the shares are
18:34
Speaker 1: down today they were down yesterday. Um, is this price
18:40
Speaker 1: too much? So if it depends on which way you
18:46
Speaker 1: look at it, So if you look at it on
18:47
Speaker 1: an earning is multiple, the answer is possibly. Um, the
18:53
Speaker 1: implied sort of valuation bid in terms of EVT but
18:58
Speaker 1: dies around nine point six times for New Crest, which is,
19:02
Speaker 1: you know, way more expensive than its next most expensive pier,
19:06
Speaker 1: which is a Nico Eagle at around eight point eight times.
19:09
Speaker 1: So on near terms earnings basis, you know, one would
19:12
Speaker 1: say Newmont is paying up. If you look at it
19:17
Speaker 1: from another perspective, if you look at it in terms
19:19
Speaker 1: of reserve value, then it actually isn't you know? Then
19:24
Speaker 1: then for instance, Agnico Eagle is you know, is around
19:27
Speaker 1: five hundred and thirty dollars per ounce of reserve, whereas
19:32
Speaker 1: the New Crest but is only around two hundred dollars
19:35
Speaker 1: an ounce. So on that basis, you know, Um, future
19:40
Speaker 1: future reserves or future growth is not that expensive today's
19:45
Speaker 1: earnings are, so I guess investors today you're saying, well,
19:50
Speaker 1: in the near term that looks a bit expensive, given
19:53
Speaker 1: that that Newmont's shares about the only gold sector gold
19:56
Speaker 1: stock that is down today. So grant in the space
20:00
Speaker 1: is here. I mean, is the scale matter? I mean,
20:03
Speaker 1: when I'm digging the stuff out of the ground, the
20:05
Speaker 1: scale matter? Why do this gale anything? Well again, it's
20:10
Speaker 1: it's it's in fairness. You know. My initial reaction would
20:14
Speaker 1: be would be to say, look, it's all about quality, right,
20:16
Speaker 1: It's how much value are you adding? What's your your
20:20
Speaker 1: cash flow to share things like all the good good
20:22
Speaker 1: metrics if we look at UM. But so far Newmont,
20:26
Speaker 1: which has built some scale, UM it does trade, also
20:29
Speaker 1: traded a premium versus many of its peers, including Barrick
20:32
Speaker 1: which is his nearest, its next biggest competitor. So let's
20:36
Speaker 1: pulled the valuation gap on its on its nearest competitor.
20:39
Speaker 1: And you know, in terms of quality, I wouldn't say
20:41
Speaker 1: Newmont is necessarily a better quality company than Barrick UM.
20:46
Speaker 1: But the market seems to um, you know, be wanting scale,
20:49
Speaker 1: So that the market seems to has seems to be
20:54
Speaker 1: indicating that, yes, scale does matter. Um, you know, my, my, my,
20:59
Speaker 1: I would the opposite side of it, and say, you know,
21:01
Speaker 1: I'd rather see the value add in terms of you know,
21:04
Speaker 1: are you able to take those reserves and resources and
21:07
Speaker 1: actually develop them and deliver the cash flow out of
21:09
Speaker 1: those ouncers. And this deal will will take some time
21:13
Speaker 1: before that comes to light. You know, you could be
21:16
Speaker 1: two to three years before we actually see the benefit
21:18
Speaker 1: of the deal coming out. So how have grant these
21:23
Speaker 1: gold miners then in general traded next to gold? I mean,
21:27
Speaker 1: we've seen the underlying commodity breeds two thousand dollars and
21:31
Speaker 1: get pretty close to an all time high. So in
21:34
Speaker 1: terms of if you look at year to day performance,
21:37
Speaker 1: most of the certainly the more leverage names have done
21:40
Speaker 1: very very well. So some of your your South African stocks,
21:44
Speaker 1: you know, up fifty percent here to date, really really
21:47
Speaker 1: done very well, massively outperformed gold. Some of the larger
21:53
Speaker 1: cap plays of have marginally outperformed gold. Because of course
21:56
Speaker 1: you still have lingering cost inflation, so that you know
22:00
Speaker 1: what you what you gain on the top line, you're
22:02
Speaker 1: also giving away on the on the bottom line to
22:04
Speaker 1: a certain extent. And and Newmont because it's in a
22:08
Speaker 1: you know, it's it's the aggressor in a bidding situation
22:10
Speaker 1: has that's kind of underperformed a little bit. So it's
22:13
Speaker 1: the one stock that has actually underperformed slightly. UM. So Yeah,
22:17
Speaker 1: in general, you know, the gold stocks and the more
22:20
Speaker 1: leveraged ones have done very very well here to date.
22:23
Speaker 1: So grant, what's the Is this a space, the mining space,
22:27
Speaker 1: something across all metals. Is this a space that is
22:30
Speaker 1: ripe for consolidation, has already consolidated? Give us a sense
22:35
Speaker 1: of how that space looks. So I think I think
22:39
Speaker 1: to sort of before I answer that question directly, I
22:42
Speaker 1: would say that the miners are definitely tilting from UM
22:46
Speaker 1: cash returns to too much more growth, so you'll see
22:51
Speaker 1: capital spend rise as well as the sector being much
22:55
Speaker 1: more willing to look at M and A as a
22:58
Speaker 1: growth angle. So I mean, for the past, i'd say,
23:02
Speaker 1: you know, since about twenty twenty thirteen or so, they've
23:05
Speaker 1: been in the in the sin bin um for for
23:09
Speaker 1: overpaying at the top of the cycle in past them
23:11
Speaker 1: and A transactions. So they've kind of redeemed themselves by
23:15
Speaker 1: by paying lots of you know, good dividends and doing
23:18
Speaker 1: share buybacks and being very very disciplined with their capital.
23:22
Speaker 1: So they've kind of earned the right to go out
23:24
Speaker 1: and grow again, and we are starting to see that
23:26
Speaker 1: slowly emerge UM, and and so is gold is I
23:32
Speaker 1: would say, is right for consolidation. Some of the other
23:34
Speaker 1: sectors are it's a little bit more challenging UM. But
23:38
Speaker 1: in in base metals, you know, the battery metals, particularly copper,
23:42
Speaker 1: is very sought after and it's quite difficult to get
23:45
Speaker 1: your hands on on really good assets. Gold. Is gold
23:49
Speaker 1: set to keep rising? I mean two thousand and five
23:51
Speaker 1: dollars a troy ouns right now two thousand and six
23:53
Speaker 1: as the FED taps out at the terminal rate, which
23:57
Speaker 1: is the expectation, and then goes on pause. Are we
24:00
Speaker 1: expecting gold to continue to climb? Oh wish? A good
24:07
Speaker 1: gold looks quite expensive to me at the moment. So
24:10
Speaker 1: at the moment you are, it's kind of anticipating that's
24:13
Speaker 1: fed on pause. And it's also it's also pricing in
24:18
Speaker 1: quite a hefty let's call an insurance premium against any
24:21
Speaker 1: sort of tale risks that are out there in the
24:24
Speaker 1: financial in the financial system, you know, more banks potentially
24:28
Speaker 1: in trouble. So for me, gold looks expensive, but it's
24:32
Speaker 1: certainly in a bold market. So I wouldn't rule out
24:34
Speaker 1: that it continues to climb, but you know, it's getting
24:38
Speaker 1: more and more expensive versus a whole raft of other
24:40
Speaker 1: financial metrics. All right, Grant, thanks so much. We appreciate
24:44
Speaker 1: you coming on here talking to us about this deal.
24:47
Speaker 1: In the gold space and kind of the gold market overall.
24:49
Speaker 1: Is Matt was saying, golds north of two hundred dollars
24:53
Speaker 1: lots here and it's yeah, it's pushing up towards all
24:55
Speaker 1: time record grants for he is a metals and mining
24:58
Speaker 1: senior analyst at Bloomberg can tell just looking at a CV.
25:01
Speaker 1: He was a head of euromining and research at Macquarie,
25:04
Speaker 1: at Deutsche Bank, he did a stint at UBS and
25:07
Speaker 1: he's been at Bloomberg Intelligence now for about three years.
25:11
Speaker 1: You're listening to the Team Cancer Line program Bloomberg Markets
25:15
Speaker 1: weekdays at ten am easting on Bloomberg dot com, the
25:18
Speaker 1: I Heart Radio app, and the Bloomberg Business app. We're
25:21
Speaker 1: listening on demand wherever you get your podcast. We're waiting
25:27
Speaker 1: some comments from Washington, d C. Secretary at Jennet Yellen
25:31
Speaker 1: scheduled around the bottom of the hour. We'll see how
25:33
Speaker 1: that goes. When she does speak. We'll bring those comments
25:35
Speaker 1: to you. I want to talk about this economy. I
25:37
Speaker 1: want to talk about the FED. So I want to
25:40
Speaker 1: talk to somebody who kind of knows what they're talking about.
25:43
Speaker 1: Here Neil Grossman, co founder and former CIO of t
25:45
Speaker 1: k n G Capital Neil while the rest of us
25:48
Speaker 1: word and an advisor to the Norwegian Central Bank. Oh nice,
25:53
Speaker 1: How did you actually live in Norway? Fortunately, no, you
25:56
Speaker 1: did it from over here, because Norway's pretty nice. Actually,
25:59
Speaker 1: they usually only invited me to come visit in February, right, exactly.
26:03
Speaker 1: You get some you get some deals there. I guess. Hey,
26:05
Speaker 1: you know, you know, last Friday most of us were
26:08
Speaker 1: not here. Weird markets were closed. We're celebrating Good Friday
26:11
Speaker 1: or however you do that thing. We had another good
26:15
Speaker 1: jobs number. You know, Payrolls are still strong, unemployment rate
26:19
Speaker 1: is low. Can you have that and this greatly anticipated
26:23
Speaker 1: recession at the same time. It's going to take time
26:26
Speaker 1: to evolve into what I would guess the number. By
26:29
Speaker 1: the way, a couple interesting things about the number, two
26:32
Speaker 1: hundred and thirty six thousand jobs. The trailing twelve months
26:36
Speaker 1: was about three hundred and forty two thousand and that's
26:38
Speaker 1: the weakest since we've started the real recovery. But if
26:41
Speaker 1: you go back pre COVID, the single strongest twelve month
26:44
Speaker 1: period going back into the eighties, it was three hundred
26:48
Speaker 1: and thirty two thousand jobs over a twelve month period
26:51
Speaker 1: on average. So we're still creating jobs in a sense
26:55
Speaker 1: at a rate that's very, very strong. To get the
27:00
Speaker 1: unemployment rate up is going to be tremendously difficult. I mean,
27:03
Speaker 1: the one hundred one hundred and twenty five thousands usually
27:05
Speaker 1: viewed to be at break even, So you're going to
27:08
Speaker 1: have to go below that to start to push the
27:11
Speaker 1: rate up. Does this fed have the I don't know
27:15
Speaker 1: if courage is the right word the metal to push
27:18
Speaker 1: through that point, because it's going to be painful for
27:20
Speaker 1: Americans and not politically palatable at all. Well, I mean, again,
27:24
Speaker 1: the question is going to be how you balance that
27:27
Speaker 1: with inflation. I think most, for the most part, Americans
27:30
Speaker 1: would probably tell you that the inflation they've experienced has
27:33
Speaker 1: been horrifically difficult for them. True, but those who I mean,
27:37
Speaker 1: if you're faced with rising prices are losing your job?
27:40
Speaker 1: I think I know what most Americans, So the question
27:43
Speaker 1: matters how far below. First of all, one hundred and
27:46
Speaker 1: twenty five thousand jobs a month is still not losing job.
27:49
Speaker 1: Even going down to zero job creation is not fully
27:54
Speaker 1: losing your job. It means, of course, the unemployment rate
27:56
Speaker 1: will be rising. In the background, I think the question
28:01
Speaker 1: is going to be a couple of things. First of all,
28:04
Speaker 1: there is no way to keep adding jobs at this
28:07
Speaker 1: rate unless the workforce starts so expansing the you're going
28:10
Speaker 1: to hit a limit where there's just no jobs available.
28:13
Speaker 1: I actually think in the background this is what could
28:15
Speaker 1: be the Fed's biggest problem, because if you're not really
28:18
Speaker 1: losing jobs, which are probably likely to find, is that
28:20
Speaker 1: the competition for good employees is going to push wages up.
28:25
Speaker 1: And that's where the FED, I think, is worried. That's
28:27
Speaker 1: the wage price spiral that they want to avoid. We
28:29
Speaker 1: did just talk with Gina Martin Adams, who runs our
28:32
Speaker 1: equities coverage for Bloomberg Intelligence, and she said, what we
28:37
Speaker 1: need to see, what investors need to see to justify
28:39
Speaker 1: these valuations is real cost cutting and that maybe we
28:43
Speaker 1: haven't seen enough in the first quarter. Corporate America needs
28:45
Speaker 1: to do more in Q two. Yeah, you haven't seen
28:47
Speaker 1: much and Again, the other interesting feature of what's going
28:50
Speaker 1: on is I think people scratched their head why the
28:54
Speaker 1: economy has tended to remain strong. But what we've had
28:57
Speaker 1: as a very strong nominal economy for the less several years,
29:02
Speaker 1: and what's been coming down is real growth is real
29:05
Speaker 1: growth because inflation has been going up. We're now starting
29:10
Speaker 1: to see inflation come down. Even though nominal growth is
29:13
Speaker 1: coming down, that will still support the real number. The
29:16
Speaker 1: real problem is going to come. And this is what
29:17
Speaker 1: I'm I've started in a position for for whatever it's worth,
29:19
Speaker 1: I'm beginning to buy protection into the fall because I
29:22
Speaker 1: think in the fall you're going to see the consequences
29:25
Speaker 1: of falling earnings what will be weaker growth, not only nominally,
29:32
Speaker 1: but I think you're going to start to see inflation
29:34
Speaker 1: actually rise as we move into the fall. Wait, before
29:37
Speaker 1: we get further into the economics of it, give us
29:39
Speaker 1: the structure the mechanics of that trade. How do you
29:42
Speaker 1: buy protection? Well, for me, I'm well, first of a
29:45
Speaker 1: couple of things are interesting, and we've talked about this before.
29:48
Speaker 1: What I've been doing for the last let's say half
29:50
Speaker 1: a year to year, because volatility is high, I'm very
29:52
Speaker 1: I've been very happy writing optionality and getting paid to
29:55
Speaker 1: take risk. Volatility has come down significantly, So I've started
29:59
Speaker 1: actually by way out the money puts, and I'll build
30:01
Speaker 1: a structure where I can have a fairly significant size,
30:05
Speaker 1: either outright or a spread trade designed to you know,
30:09
Speaker 1: to benefit if we have a fairly sizeable move. I'm
30:11
Speaker 1: not really as worried about a five or six percent move.
30:14
Speaker 1: Those are not the type of things that cause problems.
30:17
Speaker 1: You're protecting against a big ten to twenty percent drop, ye,
30:20
Speaker 1: or yeah, it could be thirty. I mean, you know
30:22
Speaker 1: some of the streets analysts are looking for three thousand,
30:25
Speaker 1: thirty two fifty that type of drop. I want to
30:28
Speaker 1: make sure I'm making a lot of money on my hedges.
30:30
Speaker 1: How the market drop or do you risk that much
30:32
Speaker 1: in the face of declining interest rates? That story, well,
30:38
Speaker 1: interest rates have fallen, you're talking about the front end.
30:40
Speaker 1: But the problem is if inflation starts to rise. Listen,
30:44
Speaker 1: remember we had a period less fall where the average
30:47
Speaker 1: inflation rate headline CPI use it was at point one percent.
30:52
Speaker 1: That's fairly low, and so it's going to be a
30:54
Speaker 1: very easy situation for the year on your numbers to
30:58
Speaker 1: start to push up the year on year inflation rate.
31:01
Speaker 1: So if inflation is rising while you're getting slowing earnings
31:05
Speaker 1: and slowing growth, the Fed's hands are still tied functionally.
31:09
Speaker 1: And that's really the situation I think we have to
31:12
Speaker 1: be worried about. So no cuts at the to the
31:16
Speaker 1: target rate. I mean they've told us time and time again.
31:20
Speaker 1: Jerome Palace said, don't expect any cuts in twenty twenty three,
31:23
Speaker 1: but the market is still pricing in four From the
31:26
Speaker 1: way I read the WORP page, the World Interest Rate
31:29
Speaker 1: probability page, and you're probably someone who's much better at
31:32
Speaker 1: reading that kind of stuff, I'm not sure it really
31:35
Speaker 1: means that the market believes the FED is going to
31:37
Speaker 1: cut rates four times. Maybe they're hedging as well well.
31:40
Speaker 1: I mean that's where the three month live or or
31:43
Speaker 1: the sofa, you know, futures are priced for. So people
31:47
Speaker 1: are actually out there putting on positions that are directing
31:50
Speaker 1: these these these yielding you know, break evens. I think
31:54
Speaker 1: the answer to all this is and the last time
31:56
Speaker 1: I was on, I think Paul asked me, do I
31:58
Speaker 1: think they're gonna cut rates? The answer is generally know unless,
32:01
Speaker 1: and the unless is a really is a stocking marker
32:04
Speaker 1: comes apart. I see no wonders. I don't understand why
32:07
Speaker 1: anyone thinks if you're near full employment and the economy
32:12
Speaker 1: is still doing okay, why the FED has any reason
32:16
Speaker 1: to cut rates. And it's the equity market that feels
32:19
Speaker 1: it needs lower yields to push prices up in this
32:22
Speaker 1: type of environment, the FED, I think, if you're looking
32:25
Speaker 1: at a longer term, you know, a dynamic stochastic process
32:30
Speaker 1: or whatever you want to call it, the FED needs
32:32
Speaker 1: to ring out inflation to actually maximize the outcomes over
32:36
Speaker 1: a long period of time, not just in the next
32:38
Speaker 1: three year six. Do you think is materially coming down
32:42
Speaker 1: or is it just kind of stuff we see maybe
32:45
Speaker 1: I think some of it is and some of it isn't.
32:47
Speaker 1: If you go into a restaurant and try and right,
32:49
Speaker 1: or you fly or you go to I mean, I
32:51
Speaker 1: can tell you stories about hotel prices just you fall,
32:54
Speaker 1: you fall off your chair. If you look at some
32:56
Speaker 1: of the things, for example, some of the union issues
32:58
Speaker 1: that are going on now, I think you know, if
33:00
Speaker 1: Rutgers just went on strike, I mean, this is not
33:03
Speaker 1: the type of behavior in a weak economy where you're
33:06
Speaker 1: worried about your job. This is I think you deserve
33:08
Speaker 1: to pay me more. And the question is if we're
33:11
Speaker 1: going to continue to see upward pressure, I think the
33:13
Speaker 1: doc workers are threatening or on strikeout West again, that
33:17
Speaker 1: by the way, has much more of a flow through impact.
33:19
Speaker 1: You know. Then then you've got the issues that it
33:21
Speaker 1: makes it harder and harder to you know, to look
33:26
Speaker 1: at say commodity price inflation and ignore the other stuff.
33:29
Speaker 1: What do you pay attention to the Jolts data? Yes,
33:34
Speaker 1: why is it now? I went back and just looked,
33:36
Speaker 1: and it usually is like four to five million, six million.
33:39
Speaker 1: We've been sitting around ten or eleven million openings for
33:43
Speaker 1: a long time. What's happened our workforce world? Well, it's not,
33:46
Speaker 1: by the way, Number one, it's not clear that those
33:48
Speaker 1: are all real jobs. I mean, sometimes if you need,
33:50
Speaker 1: if you need workers, you may be spreading out more
33:55
Speaker 1: job requests and you don't know if that people are
33:58
Speaker 1: on multiple I'm not an expert on the dynamics that's hot,
34:00
Speaker 1: but that's for sure true. I mean I can just
34:03
Speaker 1: tell you looking for used Hellcat online, use what dodge
34:07
Speaker 1: Challenger Hellcat. A lot of the ads there are no
34:11
Speaker 1: longer relevant, you know. And it's the same thing with
34:13
Speaker 1: job with job openings. Right. You're listening to the team
34:17
Speaker 1: Ken's her live program Bloomberg Markets weekdays at ten am
34:20
Speaker 1: Eastern on Bloomberg dot Com, the I Heard Radio app
34:23
Speaker 1: and the Bloomberg Business App. We're listening on to mand
34:26
Speaker 1: wherever you get your podcast. What did tree here? We
34:30
Speaker 1: got a new contributor to Bloomberg News in New York.
34:32
Speaker 1: I mean, just been your fault. I was gonna say,
34:34
Speaker 1: not new to me. I've been interviewing her since before
34:38
Speaker 1: she left, then while she was gone, and now she's
34:42
Speaker 1: come back. She's back, Simone Foxman. She is a reporter
34:45
Speaker 1: for Bloomberg News, joining us here in our Bloomberg Interactive
34:48
Speaker 1: Broker studio. So you get a gold star for coming
34:50
Speaker 1: in not phoning it in, Matt Night. We may we
34:52
Speaker 1: keep notes of that, Simone. You were in Qatar for
34:56
Speaker 1: like how many years? For three and a half years
34:58
Speaker 1: and covering all things, covering all things geopolitics, energy, a
35:03
Speaker 1: little sports. Yeah, I remember we talked to her. We
35:05
Speaker 1: talked to her during the World Cup. That's right, that's right. Oh,
35:08
Speaker 1: that's oh boy, what a great time with or soccer.
35:11
Speaker 1: Still it's still soccer to me. Good all right, But
35:15
Speaker 1: and you also did energy in a big way, right, yeah, yeah, absolutely, So.
35:18
Speaker 1: I mean you know OPEC plus what was it a
35:21
Speaker 1: week or so ago of yeah, it was it was
35:25
Speaker 1: Sunday before last. Okay, OPEC plus comes in and cuts production.
35:30
Speaker 1: What do you make of that? I mean it sounded
35:32
Speaker 1: pretty coordinated to me. Absolutely. I mean, look, we clearly
35:37
Speaker 1: have golf producers, especially Saudi Arabia, wanting oil prices higher.
35:43
Speaker 1: You know, they're looking for eighty dollars of barrel and
35:45
Speaker 1: that's largely because of the economic transformation that Saudi Arabia
35:49
Speaker 1: is pursuing. It has these you know, trillion dollar projects
35:53
Speaker 1: right like Neiom and needs the money and needs the
35:56
Speaker 1: money in order to is what. That's the that's the Drey,
36:00
Speaker 1: It's the dream city on the Red Sea. Yes, this
36:03
Speaker 1: is extremely exciting really building it. They are absolutely trying
36:07
Speaker 1: to build it. They are hiring lots of people, slow process.
36:10
Speaker 1: They have big targets for twenty thirty. Actually, so we're
36:14
Speaker 1: gonna try and see. We're gonna see how this goes
36:16
Speaker 1: over the next course of the cut, next couple of years.
36:18
Speaker 1: This will be the biggest master plan community in the world.
36:21
Speaker 1: When they're really and if you if you check out
36:24
Speaker 1: so the projections, it's this line. I believe it's like
36:27
Speaker 1: fifteen hundred kilombs. There's a very law I don't want
36:30
Speaker 1: to say the wrong number here, extremely length, the massive project,
36:34
Speaker 1: super futuristic. But you know, in order to do this,
36:37
Speaker 1: they need oil prices at eighty dollars a barrel because
36:41
Speaker 1: you know, their break even is something like seventy dollars
36:43
Speaker 1: a barrel, so they need that extra to balance there. Well,
36:46
Speaker 1: they got it there, right, I mean, WTI trades for
36:48
Speaker 1: around eighty Brent trades for eighty five and yeah, right now.
36:52
Speaker 1: But I mean I think that's why you see a
36:54
Speaker 1: move from OPEC plus you know, this time really led
36:57
Speaker 1: by Saudi Arabia cutting five hundred thousand barrels a day.
37:00
Speaker 1: That's why you're seeing this because they need that oil price.
37:04
Speaker 1: And so if there's any concern about demand from China
37:08
Speaker 1: going you know, rebounding slower than expect it, concerns about
37:12
Speaker 1: recession in the United States and Europe, you're going to
37:15
Speaker 1: see them be really proactive about this to try and
37:18
Speaker 1: keep those prices high. I think that's just the way
37:20
Speaker 1: they've come out on this so far, it looks good
37:24
Speaker 1: in terms of the European and US economies. Right the
37:28
Speaker 1: China reopening, is that still the big question mark? I
37:31
Speaker 1: think it's a little bit of everything. I think there's
37:33
Speaker 1: just a broader concern that you know, you're going to
37:36
Speaker 1: see the FED continue to tighten because of things like
37:40
Speaker 1: inflation remaining high, and I think energy doesn't probably help
37:44
Speaker 1: that kind of conversation. But yeah, I mean, look, you know,
37:49
Speaker 1: I think the markets are just jittery and they haven't
37:51
Speaker 1: kind of landed on an ultimate explanation, and you know,
37:54
Speaker 1: unless things turn around in China, then you know, the
37:57
Speaker 1: whole question is bigger. If you're so for the Qatar economy,
38:01
Speaker 1: is it all energy? A lot energy? I forget the
38:06
Speaker 1: exact breakdown, but they have tried to grow their um
38:10
Speaker 1: non energy sector, tourism, tourism. Wealthy people that are going
38:17
Speaker 1: to be arrested everywhere else in the world love to
38:19
Speaker 1: go to Qatar. Right, Hey, I mean I feel like
38:21
Speaker 1: I feel like you can lump a couple well I
38:23
Speaker 1: shouldn't say this, but there's a lot of things that
38:26
Speaker 1: are the same among these Gulf countries, and there's reasons.
38:30
Speaker 1: Clutter is no longer part of OPEC, but there's reasons
38:34
Speaker 1: for all of them. No, no geopolitical, but but there's reasons.
38:39
Speaker 1: They all want to keep oil prices relatively high. You
38:41
Speaker 1: look at the UAE as well. I mean, these are
38:44
Speaker 1: all places that see the end of hydrocarbons eventually down
38:49
Speaker 1: the road, and they say, this is our moment to
38:51
Speaker 1: really capitalize on this, to try and build non oil
38:54
Speaker 1: economies that haven't existed before, with the exception maybe of Dubai,
38:58
Speaker 1: which really largely is moved through its oil. And so
39:01
Speaker 1: again that's why you've seen them act in conjunction. So
39:04
Speaker 1: the place to go a really hot place if you're
39:08
Speaker 1: an international fugitive billionaire has been Dubai. Right, But isn't
39:13
Speaker 1: Saudi Arabia trying to get some market the boost the
39:17
Speaker 1: profile of RIAD to get some of those people. Okay,
39:21
Speaker 1: not the fugitive billionaires. I don't think anyone particularly is
39:25
Speaker 1: excited about hosting them. But maybe the former king of Spain, right, Okay, Well,
39:31
Speaker 1: Yad's plan is say everyone move your global headquarters here
39:35
Speaker 1: if you want contracts with Saudi Arabia over the coming years.
39:39
Speaker 1: And they've said, you know, a deadline. I believe it's
39:41
Speaker 1: twenty twenty four. But you've got to move here if
39:45
Speaker 1: you want our contracts. You can't have your regional headquarters
39:48
Speaker 1: and somewhere else like Dubai. So this has been a
39:50
Speaker 1: real challenge to Dubai. You know, the problem with Saudi
39:53
Speaker 1: Arabia is the standard of living is different than you
39:57
Speaker 1: might expect. It's very it's very different from the West.
40:00
Speaker 1: Still feels foreign despite all the reforms that you've seen
40:03
Speaker 1: there in the last couple of years. You know, the
40:06
Speaker 1: looser dress codes, you can find alcohol even though it
40:10
Speaker 1: continues to be illegal. You know, but there's various reasons
40:13
Speaker 1: people don't want to live in real Okay, so where
40:16
Speaker 1: they still do want to live in places like the
40:18
Speaker 1: UAE or even though hot for that matter. Okay, Well,
40:21
Speaker 1: I guess you know it's interesting here because the Journal
40:24
Speaker 1: had a story out recently, Saudi led oil cuts hit headwind.
40:27
Speaker 1: Some small producers have boosted their output, threatening to undercut
40:30
Speaker 1: the effort. I mean, how powerful is OPEC and OPEC
40:34
Speaker 1: plus today versus I don't know twenty thirty years ago,
40:37
Speaker 1: because it seemed pretty like they still kind of have it.
40:40
Speaker 1: If you will, they can still move the markets. Obviously,
40:42
Speaker 1: well absolutely, they can still move the markets, but I
40:44
Speaker 1: think the US supply is a real challenge to them.
40:48
Speaker 1: And notably, the US has increased its output by more
40:51
Speaker 1: than a billion barrels a day over the past year.
40:54
Speaker 1: But the Washer Journal story it points out something very
40:57
Speaker 1: interesting that even members of OPEC the issue. Part of
41:01
Speaker 1: the reason that we had really you know, tight markets,
41:04
Speaker 1: high prices for a little while was because even members
41:07
Speaker 1: of OPEC, like Nigeria, for example, they were overcomplying so
41:12
Speaker 1: weren't producing as much as the quota that they had.
41:16
Speaker 1: So the issue for places like Saudi Arabia is now
41:20
Speaker 1: they're actually producing much closer to the quota they had.
41:24
Speaker 1: You know, they'd shut down some of their mining and
41:27
Speaker 1: production for COVID nineteen and it was a slow start
41:31
Speaker 1: for them. They there was some theft issues, particularly in Nigeria,
41:34
Speaker 1: but you know, Nigeria adding three hundred fifty thousand barrels
41:37
Speaker 1: per days in September, you know, that erases about half
41:40
Speaker 1: of the Saudi cut at that time. So it's not
41:43
Speaker 1: just the overall OPEC plus move, it's you know, working
41:47
Speaker 1: against these even small players one hundred thousand barrels a
41:50
Speaker 1: day here, two hundred thousand dollars a day there. You know,
41:53
Speaker 1: that erodes the overall power of someone like Saudi Arabia, Russia.
41:56
Speaker 1: Let's broaden it out to a globe conversation about gas prices,
42:01
Speaker 1: because we were freaking out. We were a year ago,
42:05
Speaker 1: and especially Europe was not in a good place. But
42:09
Speaker 1: they've done relatively well, helped by I guess a milder weather. Right,
42:14
Speaker 1: how does it look now we're heading in the summer,
42:18
Speaker 1: so we're gonna be okay, but going in the next winter. Yeah,
42:21
Speaker 1: they got super lucky with the weather, and it really
42:25
Speaker 1: meant that storage was not eroded by as much as
42:29
Speaker 1: it could have been. I think we ended the season,
42:33
Speaker 1: the overall season around sixty percent of storage still remaining full.
42:39
Speaker 1: And we heard a lot of folks, you know, I
42:40
Speaker 1: think coming into this, you're saying, well, the twenty twenty
42:43
Speaker 1: three twenty twenty four winter, that's gonna be the main concern.
42:47
Speaker 1: But now you have Morgan Stanley's saying that they believe
42:50
Speaker 1: that European storage is gonna be a one hundred percent
42:53
Speaker 1: full by late August. That's not so far off from
42:56
Speaker 1: our BNF forecast. Of a couple of weeks ago, ninety
42:59
Speaker 1: percent at the end of September, and this really sets
43:02
Speaker 1: them up for a very positive year here. A lot
43:05
Speaker 1: of this, however, is demand destruction. You know, industry not
43:10
Speaker 1: seeing much higher prices still and therefore you know, slower
43:14
Speaker 1: European economy. That said, you know, if the concern was
43:18
Speaker 1: that Europe's going to fall apart because there were decline
43:21
Speaker 1: and supplies from Russia, that's just not really what we're seeing. Again.
43:25
Speaker 1: We got a couple of winters here though, to get through.
43:27
Speaker 1: All right, So you've been when you should move back
43:29
Speaker 1: to New York, like two weeks ago? What do you
43:32
Speaker 1: miss most of Qatar? The pool in my building? The pool? No,
43:36
Speaker 1: I miss my friends too, but but you know you
43:38
Speaker 1: live in New York City. Yep, I don't know how.
43:41
Speaker 1: I mean, there are handful of people who probably have
43:43
Speaker 1: a pool in their building. But you know, good upstairs
43:46
Speaker 1: and what and what were you looking forward to most
43:48
Speaker 1: coming back to New York? Oh, my friends and family
43:50
Speaker 1: we live we live around here. But you know, also
43:53
Speaker 1: good pizza, great pizza. I mean there was good food
43:57
Speaker 1: in cluts are too, but um, you know the differences.
44:01
Speaker 1: It's not walkable in the same way. It's very new,
44:03
Speaker 1: it's very fresh, and I think it is going to
44:05
Speaker 1: take them time to kind of build more cultural cachet.
44:10
Speaker 1: That's just that's just my opinion. Well, welcome back to
44:13
Speaker 1: the capital of the world. All right, Simon Foxman. She's
44:17
Speaker 1: a reporter for Bloomberg Television and News. Joining us here
44:20
Speaker 1: in a Bloomberg in Actor Broker studio. You're listening to
44:23
Speaker 1: the tape cans are live program Bloomberg Markets weekdays at
44:26
Speaker 1: ten am Eastern on Bloomberg Radio, tune in app, Bloomberg
44:30
Speaker 1: dot Com, and the Bloomberg Business App. You can also
44:33
Speaker 1: listen live on Amazon Alexa from our flagship New York station.
44:36
Speaker 1: Just say Alexa play Bloomberg eleven thirty. Looking at the
44:42
Speaker 1: shares of CarMax about eleven percent today, put out some
44:47
Speaker 1: pretty good numbers. Let's get break it all down. We'll
44:50
Speaker 1: talk all things auto. Since Matt Miller is not here,
44:53
Speaker 1: he went over to the TV studio to get ready
44:55
Speaker 1: for his show. So let's talk cars. Kevin Tyne and
44:57
Speaker 1: Cedar auto analysts for Bloomberg Intelligence. So Carmack's big moving
45:01
Speaker 1: to stock here today. Kevin, what's the story with their earnings. Yeah,
45:04
Speaker 1: you know one of the companies that just given the scale,
45:09
Speaker 1: the experience, the market positioning that you did a decent
45:14
Speaker 1: job with controlling costs in a market where volume is
45:19
Speaker 1: going to be low for a while. Gross profit per
45:22
Speaker 1: unit was strong, but you know, this is a company
45:26
Speaker 1: that's going to be dealing with a much lower volume
45:29
Speaker 1: environment for probably quite a while, and that's really what
45:32
Speaker 1: derailed you know, some of the pure play online only
45:37
Speaker 1: used sellers like Carvana and Shift and Room and companies
45:41
Speaker 1: like that. So you know, just their market position was
45:45
Speaker 1: was a big advantage to them in this kind of
45:48
Speaker 1: environment where we're just not going to sell as much stuff.
45:51
Speaker 1: And Kevin I remember just you know, putting in the
45:54
Speaker 1: context when the pandemic hit, you know, Detroit shutdown its
45:58
Speaker 1: lines and so people in the car they had to
46:00
Speaker 1: really start looking at the used car market, and as result,
46:03
Speaker 1: used cars went prices went through the roof. Are we
46:05
Speaker 1: now lapping that? And that tough tough comps? Now, well
46:10
Speaker 1: here's a problem. And you know, everything you hear about
46:13
Speaker 1: the used car market is like, oh just wait, here
46:15
Speaker 1: comes prices just tumbling down, and you know that volume issue.
46:21
Speaker 1: On the news side, I think bleeds into the use
46:24
Speaker 1: side as time goes by, and especially like in areas
46:27
Speaker 1: like leasing. You know, so when we prior to the pandemic,
46:31
Speaker 1: if you're talking about a seventeen million unit market at
46:34
Speaker 1: thirty percent lease penetration, you know, we had five million
46:37
Speaker 1: off lease vehicles coming every you know, every year. But
46:41
Speaker 1: the pandemic hits and we go down to fourteen million
46:45
Speaker 1: unit market. And then on the news side, you're not
46:48
Speaker 1: incentivizing those sales because there's so much lower right selling
46:52
Speaker 1: over sticker, no more incentives, no more discounting, so prices
46:57
Speaker 1: are high. So you're getting a market or you had
47:00
Speaker 1: a market that didn't need lease incentives. So leasing goes
47:04
Speaker 1: down to twenty percent in twenty twenty two, and we
47:08
Speaker 1: only did fourteen million units. So you're talking about a
47:11
Speaker 1: world where we're going to see instead of five million
47:14
Speaker 1: off lease vehicles, two and a half. And so that
47:18
Speaker 1: kind of situation, you're saying, like, Okay, well, how do
47:21
Speaker 1: prices come down if we're going to cut the off
47:24
Speaker 1: lease supply in half? Yep? Yep. So I mean maybe
47:29
Speaker 1: we've seen the declines we're going to see. So so
47:31
Speaker 1: if I'm CarMax am am, I like the new, like
47:36
Speaker 1: the new model year guys. If I'm at like CarMax
47:38
Speaker 1: selling used cars, am I selling fewer units but maybe
47:41
Speaker 1: at a higher gross margin? I think so. And I
47:43
Speaker 1: think like you said, you know, new vehicle dealers, and
47:47
Speaker 1: I mean full line dealers that are doing new use
47:50
Speaker 1: part service financing Church. All those guys and then they
47:54
Speaker 1: used only and the online used only, like, all those
47:58
Speaker 1: dealers or all those retailers should be prepared in all
48:02
Speaker 1: those business units to be doing less volume except for
48:06
Speaker 1: probably you know, your service bays, your parts counters. Right
48:09
Speaker 1: as people are going to be holding onto their vehicles
48:11
Speaker 1: longer because of pricing or interest rates, you know, you
48:14
Speaker 1: can expect you know, more wear and tear maintenance. So
48:18
Speaker 1: the full line dealers probably have a little bit of
48:20
Speaker 1: advantage in that business unit specifically, But anybody's selling vehicles
48:25
Speaker 1: new or use prepare for a much lower volume environment.
48:28
Speaker 1: All right. So again, in my lifetime, the Detroit you know,
48:33
Speaker 1: the auto guys will crank out seventeen million units a year.
48:36
Speaker 1: You're telling me that's kind of a thing of the past,
48:38
Speaker 1: that these guys are going to have the discipline to
48:41
Speaker 1: keep production down at I don't know, fourteen or fifteen
48:43
Speaker 1: million a year. Yeah, I think so, And I don't know,
48:46
Speaker 1: it's so much discipline. I think, you know, this is
48:48
Speaker 1: where the market or the industry has wanted to be forever,
48:52
Speaker 1: and it all comes down to rationalizing those costs. You know,
48:56
Speaker 1: it was a world where it had to be seventeen
48:58
Speaker 1: million units because you know, there was a lot of
49:01
Speaker 1: fixed costs in their legacy costs, you know, pensions, union,
49:06
Speaker 1: labor related costs. So it's really a different environment now
49:10
Speaker 1: on the on the cost side of the ledger that
49:14
Speaker 1: you just don't need to produce that many vehicles. And
49:17
Speaker 1: I think the other thing that's nice too, when you
49:19
Speaker 1: look at it from that perspective, you got all the
49:21
Speaker 1: transportation costs, the carrying costs for the dealers. So it's
49:24
Speaker 1: not just the manufacturers that are okay with this lower volume,
49:29
Speaker 1: richer margin mix. It's also the retailers. Right. You don't
49:33
Speaker 1: have you don't have logistics and floor plan expense on
49:40
Speaker 1: a sea of vehicles that you're not going to move
49:43
Speaker 1: for months at a time. Yeah, I guess so. I
49:46
Speaker 1: mean it sounds like, you know, this is the best
49:50
Speaker 1: spot the industry has been in from just a profitability
49:53
Speaker 1: perspective that I can remember. I mean, is that am
49:55
Speaker 1: I overstating it? No, not at all. And I think
49:58
Speaker 1: that's the thing is everybody goes, oh, you know, are
50:00
Speaker 1: they going to have the discipline? And you say, well,
50:03
Speaker 1: you know, it's where you want it to be. So
50:06
Speaker 1: it's it's not an accident that the industry is here.
50:09
Speaker 1: I think, to their credit, manufacturers and even retailers have
50:14
Speaker 1: moved their businesses to a point where it's it's more efficient, right,
50:19
Speaker 1: fewer years now, you don't have to worry about tacking
50:22
Speaker 1: on those extra two and a half three million units
50:27
Speaker 1: by throwing money at the problem. Right, So hey, if
50:31
Speaker 1: I only need to get my market share of a
50:33
Speaker 1: fifteen million unit market, that's a lot easier than trying
50:36
Speaker 1: to get that same market share and create a seventeen
50:40
Speaker 1: million unit market. And it's you know, it's it's better
50:43
Speaker 1: for the income statement, it's better for your retail network.
50:47
Speaker 1: So it's a much organically healthy environment. But I think
50:51
Speaker 1: people look at things from the consumer's perspective and say,
50:55
Speaker 1: you know, where do those two and a half million
50:57
Speaker 1: units go? The market is rolling over, it's you know,
51:00
Speaker 1: it's it's it's devastated. It's and it's really not. It's
51:04
Speaker 1: because the revenue pool is actually larger. How come it
51:10
Speaker 1: seems like maybe this is a sector that should be
51:11
Speaker 1: rerated from an investment perspective, stock perspective, a multiple perspective.
51:15
Speaker 1: Are you surprised we haven't seen these stocks move higher
51:17
Speaker 1: because it sounds like a lot better business than it
51:19
Speaker 1: ever has been. Yeah, I think I think the way
51:21
Speaker 1: it's looked at is that, right, you're either a growth
51:25
Speaker 1: industry or you're a value play. And you know, I
51:28
Speaker 1: think the problem is that when you go, well, how
51:30
Speaker 1: do you explain being a growth industry going from fifteen
51:34
Speaker 1: million years? You know, from seventeen to fifteen, Right, that's
51:37
Speaker 1: the opposite of growth. But you know, people aren't really
51:39
Speaker 1: looking at what that means for you know, the revenue
51:42
Speaker 1: and profit contribution from fewer units. So, and I think
51:47
Speaker 1: what we're on the verge of is, look this, this
51:50
Speaker 1: industry couldn't grow total volume, so it became about mix
51:54
Speaker 1: shift to truck from cary. Now you have a lot
51:57
Speaker 1: of automakers that can't shift anymore truck for it is
52:01
Speaker 1: like ninety eight percent already and most are already there.
52:05
Speaker 1: So what you're getting now is that the next growth
52:07
Speaker 1: opportunity comes from the mixed shift to electrification. Problem is
52:11
Speaker 1: it's not profitable yet. And ultimately thirty seconds left, Kevin, Ultimately,
52:16
Speaker 1: what do you think the profit margins on an EV
52:19
Speaker 1: vehicle will be versus an ice? Well, you know, the
52:21
Speaker 1: idea is that simple manufacturing, simpler manufacturing process, which I'm
52:28
Speaker 1: not sure. I think if we look at the way
52:30
Speaker 1: Tesla does things, there's a lot of copy and paste,
52:33
Speaker 1: and you know, the models look the same, and you know,
52:36
Speaker 1: I'm not sure that a full line portfolio is as
52:40
Speaker 1: efficient in terms of production, but fewer moving parts, and
52:43
Speaker 1: you know, the whole idea of it. Look, it's a
52:45
Speaker 1: skateboard of batteries and then you're just going to flap
52:47
Speaker 1: a different body on it. You know it can get there,
52:49
Speaker 1: but you know you're talking about a whole different menu
52:52
Speaker 1: of materials too. Yep, all right, Kevin. Always a pleasure
52:56
Speaker 1: to speak with you, particularly when Matt's not here, because
52:58
Speaker 1: I could get a question two in their Usually Matt
53:01
Speaker 1: just goes all over the auto story. Thanks for listening
53:04
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
53:08
Speaker 1: to interviews of Apple podcasts, or whatever podcast platform you prefer.
53:13
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen
53:16
Speaker 1: seventy three. And I'm fall Sweeney. I'm on Twitter at
53:19
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
53:22
Speaker 1: worldwide at Bloomberg Radio