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Markets, Bonds, Energy, and Earnings (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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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
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. Let's get to another
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Speaker 1: name reporting numbers, A T and T mob Bell. The
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Speaker 1: numbers I kind of thought were okay, maybe a little
0:27
Speaker 1: disappointed about the stocks up six point two per cent.
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Speaker 1: So let's break down what's going on with Big T
0:34
Speaker 1: buying some telephone? Is what we used to say on
0:36
Speaker 1: the trading desk, shares a telephone for sale and you
0:40
Speaker 1: know T. Yeah, John Butler, he's he knows back, he
0:43
Speaker 1: goes back that far. John talks to us about A
0:45
Speaker 1: T and T. What did they report and kind of
0:47
Speaker 1: how did you and in the market take their numbers? So, Paul,
0:51
Speaker 1: I think you, I think you characterized it correctly. The
0:55
Speaker 1: numbers for the quarter largely in line. It's all about
1:01
Speaker 1: is coming right the streets, very forward looking, and I
1:05
Speaker 1: thought management's tone on the coming year and beyond was confident.
1:11
Speaker 1: You know, they very they do a very good job
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Speaker 1: of sort of managing the narrative. A T and T
1:18
Speaker 1: right now is transitioning to you know, a connectivity company.
1:23
Speaker 1: They're moving beyond that, you know, media and telecom conglomerate.
1:29
Speaker 1: They've sold off Warner Media in April of last year,
1:33
Speaker 1: and they're and they're moving forward, I think ahead into
1:37
Speaker 1: pushing into fiber and five G and they're doing you know,
1:40
Speaker 1: it's steady as she goes. They're really doing a very
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Speaker 1: good job there of building out that fiber network and
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Speaker 1: standing up news spent spectrum for five G and again
1:51
Speaker 1: management's tone around the whole project, if you will, was
1:55
Speaker 1: very confident. Well, what does that mean for the share
1:59
Speaker 1: price here? Because AT and T has consistently actually outperformed
2:03
Speaker 1: some of its peers here Hoizon T Mobile as well.
2:05
Speaker 1: What are we looking at when it comes to the
2:07
Speaker 1: future of the share price. So I can't really speak
2:12
Speaker 1: specifically to the price action, but I can talk about sentiment.
2:17
Speaker 1: So if you wind back the clock even six months,
2:20
Speaker 1: I seem I think people were very worried about the
2:24
Speaker 1: cash flow outlooking can they cover the dividend and can
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Speaker 1: they really pull off this fiber build out at a
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Speaker 1: time when the overall broadband market is maturing, just like
2:35
Speaker 1: wireless did a couple of years ago. And I think
2:39
Speaker 1: the answer to all that is yes, you know, they're
2:41
Speaker 1: beginning to execute well. The visibility on that on that
2:46
Speaker 1: build out, and their prospects in that market have improved,
2:50
Speaker 1: and so overall we're seeing a shift in sentiment from
2:54
Speaker 1: negative to wow. I think this actually is becoming a good,
3:00
Speaker 1: you know, stable story with um you know, the on
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Speaker 1: the call, management said, look, we feel we're going to
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Speaker 1: generate more than enough cash flow to cover the dividends.
3:12
Speaker 1: So anyone holding the stock for for the income, I
3:18
Speaker 1: think is going to feel better coming out of this call.
3:21
Speaker 1: So John, and it's you know, if you're a long
3:24
Speaker 1: time a T T shareholder, you've just been whipsawed. Here.
3:26
Speaker 1: You were, you know, kind of a tired old telephone
3:29
Speaker 1: company getting into wireless, and then boy they did this
3:33
Speaker 1: one a D and got to loaded up in the
3:35
Speaker 1: media business with Direct TV and then Time Warner, and
3:38
Speaker 1: they you know, almost as quickly unloaded those businesses. So
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Speaker 1: if I buy a T and T today, what am
3:44
Speaker 1: I buying and what am I hanging my hat on?
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Speaker 1: I think you're hanging the hat on the dividend partly,
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Speaker 1: and you're hanging your hat on them getting into the
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Speaker 1: broadband business, but doing well in that business, taking share
4:02
Speaker 1: in that business. You know, I think CEO John Stankey
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Speaker 1: nailed it when he said, you know, ultimately data finds
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Speaker 1: its way to fiber. And you know, with the growth
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Speaker 1: in data coming out of five G right with with
4:17
Speaker 1: video streaming in particular, you need a lot of capacity
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Speaker 1: to support that traffic flow. And I think fiber is
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Speaker 1: the right answer for that. And uh, you know, the
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Speaker 1: cable companies are all scrambling to upgrade their networks, which
4:34
Speaker 1: are mostly coaxial cable, and so I think a T
4:38
Speaker 1: and T has an inherent advantage with fiber. They see
4:42
Speaker 1: that and they're kind of pressing their bet there. Not
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Speaker 1: only are they building the fiber in region and hitting
4:49
Speaker 1: their targets there UM, but they're building out a region now.
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Speaker 1: They partnered with UM with black Stones to begin to
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Speaker 1: build fiber outside the network. So or there could be upside,
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Speaker 1: if you will, to this broadband bed. And I think
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Speaker 1: that's what you're hanging your hat on that and the
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Speaker 1: dividends story, So is this something is the R word,
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Speaker 1: the recession word, something that a T and T really
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Speaker 1: has to worry about here when we're talking about this
5:15
Speaker 1: kind of build out. You know, it's moving around the
5:20
Speaker 1: numbers modestly, I would say this year. But I think
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Speaker 1: the investment community, based on where a sentiment is around
5:29
Speaker 1: these names, appears to be looking beyond any recession this year.
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Speaker 1: And um and I say that because Verizon reported a
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Speaker 1: choppier quarter and a choppier outlook yesterday, and yet the
5:44
Speaker 1: investment community seemed to be looking beyond all that. So
5:48
Speaker 1: you know, yes, telecom is a g d P plus business,
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Speaker 1: so if you move into recession, it can crimp growth.
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Speaker 1: But um, again, managements com men surround it, we're like, look,
6:01
Speaker 1: you know, we're looking at the economy and we're seeing
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Speaker 1: a relatively stable economic environment right now. We're not seeing
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Speaker 1: that down draft that everyone's bracing for. And they did say, look,
6:14
Speaker 1: things can change and there right on that things can
6:17
Speaker 1: change on a dime. But I'm sort of in alignment
6:20
Speaker 1: with what they're seeing. Based on what I'm hearing from companies,
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Speaker 1: I'm seeing modest softness emerged, but not not anything I've
6:29
Speaker 1: seen with recessions past. All Right, John, great stuff. Always
6:33
Speaker 1: appreciate getting your perspective. You've seen a bunch of cycles
6:37
Speaker 1: over the years. We appreciate getting you perspective. John Butler,
6:39
Speaker 1: he's a senior analyst covering telecoms for a Bloomberg Intelligence.
6:43
Speaker 1: He's based in our lovely Princeton, New Jersey offices. All Right,
6:49
Speaker 1: I'm an equity guy. I just tell a story forecast
6:52
Speaker 1: and earnings. I slap a multiple onnament and my job's done.
6:55
Speaker 1: I go on. But the fixed income folks, that's a
6:57
Speaker 1: whole another game. They have to dive deep. But boy,
7:01
Speaker 1: they had a brutal year last year. I mean, returns
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Speaker 1: that they've never seen before. So let's figure out where
7:07
Speaker 1: we are now, what do we do going forward? Uh?
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Speaker 1: And for that, we're fortunate to have Stephen oh in
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Speaker 1: the Bloomberg Interactive Broker studio. He's not mailing it in
7:15
Speaker 1: from l A. He's here in New York. And why
7:17
Speaker 1: wouldn't he be. It's the world's capital. Uh. He's a
7:19
Speaker 1: global head of Fixingcome for Prime Bridge Investment. Steven, thanks
7:22
Speaker 1: much for joining us here today. When you look back
7:24
Speaker 1: on two now you have some perspective what happened well
7:30
Speaker 1: on the one hand, I think it was largely anticipated
7:33
Speaker 1: that the FED would start to normalize policy going forward.
7:36
Speaker 1: I think what was the unexpected portion was really the
7:39
Speaker 1: strengthen the resistance of inflation, which forced the FED and
7:43
Speaker 1: other central banks to be much more aggressive in their
7:46
Speaker 1: actions in order to rein in future inflationary pressures. And
7:50
Speaker 1: so we're at a turning point right now. But we
7:53
Speaker 1: always said that entering that fixed income was largely unattractive
7:59
Speaker 1: give the fact that duration was extended. Fields were very
8:02
Speaker 1: low and there just wasn't much upside, and we were
8:06
Speaker 1: recommending that fixing come be reduced in portfolios. But we
8:10
Speaker 1: finally have some yield in fixing come, which is providing
8:14
Speaker 1: a new opportunity. Stephen, do you care at all about
8:17
Speaker 1: the debt ceiling? You know, I think it's very important
8:20
Speaker 1: and something that we need to pay attention to. But
8:22
Speaker 1: it's a repeat process, right, and so we seem like
8:25
Speaker 1: we're always here At some point. It would be great
8:27
Speaker 1: to get a resolution which is quasi permanent in nature.
8:31
Speaker 1: But I think from the period when we had a
8:34
Speaker 1: semi mini crisis back in with the issue, we've sort
8:38
Speaker 1: of navigated from there with the market largely ignoring the
8:41
Speaker 1: worst case outcomes where any type of a theoretical default
8:45
Speaker 1: would be short lived in nature. So that's seems to
8:48
Speaker 1: be the consensus on on Wall Street and around the world.
8:51
Speaker 1: But I'm curious, though, in that worst case scenario, do
8:53
Speaker 1: we then see the treasury market have a much bigger
8:59
Speaker 1: dislocated nation than perhaps in the team saga that you
9:04
Speaker 1: are referencing. Simply because we are now in a tightening
9:07
Speaker 1: era as opposed to an easy era, I would say
9:10
Speaker 1: a combination of factors could result in higher levels of
9:13
Speaker 1: treasury volatility. It's not only that component that you alluded
9:16
Speaker 1: to where we are in a tightening era, but volatility
9:19
Speaker 1: has risen significantly as the buyer basis diminished overall, and
9:25
Speaker 1: we've seen that even without any of the issues over
9:27
Speaker 1: the course of the past year. But again, any type
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Speaker 1: of volatility that results in yields spiking up would be
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Speaker 1: more of a buying opportunity because it's hard to see
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Speaker 1: a scenario where that last or any period of time.
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Speaker 1: All Right, you're fixing the guys. You blew it in two,
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Speaker 1: here's your chance to redeem yourself in three. What do
9:47
Speaker 1: we do now? Well, I'm not expecting fixed income to
9:50
Speaker 1: produce tremendous returns in a rebound. We're not going to
9:53
Speaker 1: go back to ultra low rates. In fact, we're probably
9:56
Speaker 1: out of consensus from the market that we do not
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Speaker 1: believe that the Fed will cut rates later this year uh,
10:01
Speaker 1: and the market is pricing that in. So the way
10:03
Speaker 1: we look at fixed income outcomes for this year is
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Speaker 1: that because yields have peaked last year, we don't see
10:09
Speaker 1: the risking fixed income, but we see more of a
10:11
Speaker 1: coupon clipping from here on out, and most of the
10:14
Speaker 1: price action that may have been anticipated has already played
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Speaker 1: out in the first three weeks of the year. So
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Speaker 1: if you are at a consensus then from the market,
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Speaker 1: does that then mean that you are selling the front
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Speaker 1: end of the curve? Blooming Intelligence, Chief Rate Strategy Ira Jersey,
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Speaker 1: He says, look, yield are so low on the front
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Speaker 1: end simply because of those FED cuts being priced in.
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Speaker 1: Is that the trade you'd make? Well, we think it.
10:34
Speaker 1: Barbell strategy makes sense because if you look at the steepness,
10:38
Speaker 1: you know, being in T bills is not a bad
10:40
Speaker 1: place to be right now and rolling that over because
10:43
Speaker 1: we do think it will hold up and the yields
10:44
Speaker 1: that you're getting our superior rather than selling the front.
10:47
Speaker 1: Then the curve. We like the approach of owning ultra
10:50
Speaker 1: short and then owning about the twenty year part of
10:52
Speaker 1: the curve in the Barbell approach, where that's going to
10:54
Speaker 1: be more reflective of a longer term normalized yield curve.
10:57
Speaker 1: That's a very wide range. It is what you're but
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Speaker 1: you want to set your duration target. But that's where
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Speaker 1: we see the two ends of the value. Interesting all right.
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Speaker 1: Back in the day, you were a vice president on
11:07
Speaker 1: doing some high yield stuff a Bank America Securities, and
11:10
Speaker 1: that was the security's arm of Bank America before they
11:13
Speaker 1: bought Merrill Lynch in two thousand and eight. What do
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Speaker 1: you think about the high yield market here? I mean,
11:18
Speaker 1: people tell me I got a recession coming. Do I
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Speaker 1: even think about venturing into high yield? Well, high yield
11:23
Speaker 1: on surface to yields are very attractive. But from a
11:25
Speaker 1: spread standpoint, we always have to think about what is
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Speaker 1: the fundamental outlook for both earnings, for defaults and so forth,
11:32
Speaker 1: and what is the valuation to reflect that. And right now,
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Speaker 1: high yield spreads on the low four hundreds right now,
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Speaker 1: it is not reflecting any type of a recessionary outcome.
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Speaker 1: So from a tactical standpoint, we are cautious on high
11:44
Speaker 1: yield right now. The case where high yield isn't is
11:47
Speaker 1: it an attractive part of fixed income credit markets right now,
11:50
Speaker 1: because we don't believe it is. The case where high
11:53
Speaker 1: yield is that it makes a lot of sense of
11:55
Speaker 1: relation to equities as a d risking approach. If you
11:58
Speaker 1: can get north of eight percent high yield lot de
12:01
Speaker 1: risking from equities, that trade off to us is very attractive.
12:05
Speaker 1: But within fixed income we prefer to stay within investment
12:08
Speaker 1: grade right now. Let's talk about then, uh, the story
12:13
Speaker 1: when it comes to geo political risk as well. If
12:15
Speaker 1: you weren't worried about the debt ceiling, are you all
12:17
Speaker 1: worried about the bond market? Looking at the war in
12:20
Speaker 1: Ukraine as an ongoing issue, that is something that should
12:24
Speaker 1: factor into the decisions. The war in Ukraine has impacted
12:28
Speaker 1: UH global financial markets, not so much directly, but really
12:32
Speaker 1: the residual impact that it's having commodities, energy, certainly within
12:36
Speaker 1: Europe overall, although the male winners seems to have participated
12:39
Speaker 1: that somewhat. While there is a scenario of sort of
12:42
Speaker 1: a severe terror, risk that the war could become a
12:45
Speaker 1: catalyst for broader geopolitical tensions and spreading that war, which
12:50
Speaker 1: could have a cataclysmic effect. You know, we believe that
12:53
Speaker 1: the probability is very low, although we're not political analysts.
12:56
Speaker 1: Ironically in some respects from a risk standpoint, as a
13:00
Speaker 1: extinct come in a credit manager. There's the other side
13:03
Speaker 1: of that risk, from the standpoint that what if there
13:05
Speaker 1: is a peaceful resolution and outcome. Again, it's not something
13:09
Speaker 1: that we're predicting, but it represents a risk that you
13:12
Speaker 1: could have a tremendous rally in the markets, and we
13:14
Speaker 1: do not have enough risk within the portfolio. So we
13:17
Speaker 1: always think about risk, not only toward one end, but
13:20
Speaker 1: what can go wrong relative to our personfolio positioning. Well,
13:23
Speaker 1: speaking of portfolio positioning, let's talk a little bit about
13:25
Speaker 1: the cross acid moves here, because when you're looking at
13:27
Speaker 1: the bond market, I'm curious, so what specific, uh kind
13:31
Speaker 1: of leading indicators you're leading market action you're really looking at.
13:33
Speaker 1: For example, I will clarify, uh if you went back
13:37
Speaker 1: to say, just pulling up the chart on my handy
13:39
Speaker 1: dandy Winberg terminal. Right now, going back into early two
13:43
Speaker 1: and the war first broke out, you start to see
13:45
Speaker 1: oil prices rise, commodity prices rise, and yields rise in tandem.
13:49
Speaker 1: So the correlation between bond yields and commodities really quite
13:53
Speaker 1: strong and went hand in hand. That correlation has now
13:56
Speaker 1: been inversed, and I'm curious if you think that correlation
13:59
Speaker 1: will snap or perhaps just get more and more negative. Well,
14:02
Speaker 1: we're in markets right now where traditional relationships don't necessarily
14:07
Speaker 1: work out because it's really about where central banks are
14:10
Speaker 1: heading that's driving markets, and that necessarily does not pretend
14:14
Speaker 1: that historical correlations and relationships will work out in the
14:18
Speaker 1: same manner overall. So what we focus on, of course
14:21
Speaker 1: are all of the leading indicator of economics, but we
14:24
Speaker 1: also are very cautious about where do we think policy
14:27
Speaker 1: path is going to go, and again, what our markets reflecting,
14:30
Speaker 1: and do we have a view that differs in any
14:33
Speaker 1: way from the market, and that what really frames our
14:36
Speaker 1: positioning overall. But there's clearly indications right now of a
14:41
Speaker 1: soft landing or a perfect lie pass scenario that the
14:45
Speaker 1: FED is supposed to engineer. We don't believe that that
14:48
Speaker 1: would necessarily be the case, and so that creates more
14:51
Speaker 1: caution in how we're positioning relative to what the market view.
14:54
Speaker 1: Maybe Okay, so I get to feel that maybe you're
14:56
Speaker 1: a little bit more cautious than the average fixed income manager.
15:01
Speaker 1: That being said, where are you if you had capital
15:05
Speaker 1: allocate today? Where would you go? The areas that we
15:08
Speaker 1: are being cautious of our incredit markets that in our
15:12
Speaker 1: your trading type to a mild recessionary type of scenario,
15:15
Speaker 1: and those are going to be developed market fixed income.
15:17
Speaker 1: The area where fundamentals are improving is in Asia, credit
15:22
Speaker 1: in China in particular with the reopening, and so where
15:25
Speaker 1: we see the fundamental opportunity is really more so in
15:28
Speaker 1: emerging market credit opportunities right now, and so it may
15:32
Speaker 1: be a little bit early or late, depending on your
15:35
Speaker 1: view of China property and so forth. But we think
15:38
Speaker 1: that gliding the portfolio more towards emerging market in the
15:42
Speaker 1: coming year, based on the differential and fundamentals h makes
15:46
Speaker 1: a lot more sense this year. We've heard that. And
15:48
Speaker 1: my concern, not just about thir thirty seconds, is isn't
15:51
Speaker 1: there recession risk outside of the US more pronounced than
15:54
Speaker 1: here from a lot of emerging markets. I think it
15:57
Speaker 1: depends on how you define recession. There is certainly a
16:00
Speaker 1: correlation of what happens with developed markets versus emerging markets.
16:03
Speaker 1: The other component that support of the fundamentals in emerging markets,
16:07
Speaker 1: although there's certainly flashpoints and we're seeing some of the
16:09
Speaker 1: political risk and latdown so forth, is the fact that
16:13
Speaker 1: the dollar strength, which was an inhibitor and a headwind
16:16
Speaker 1: to emerging markets. We don't necessarily believe that the dollar
16:19
Speaker 1: will weaken significantly, but the headwinds of strengthening is abating,
16:23
Speaker 1: and we don't expect that to re emerge great points.
16:26
Speaker 1: Really appreciate it, Steven Oh. He's a global head of
16:28
Speaker 1: fixed income at pine Bridge Investments. He's based in Los Angeles.
16:31
Speaker 1: I'm looking at the office is about halfway between Beverly
16:34
Speaker 1: Hills and Santa Monica. If I had to guess center
16:38
Speaker 1: it is. It's a good place to live, you know,
16:40
Speaker 1: New York Center. But it's not a bad place. A
16:43
Speaker 1: good stuff, Steven. We appreciate it. Stopping into our studios here,
16:50
Speaker 1: the markets down at one point six percent today. Did
16:52
Speaker 1: we focus on the Fed? Do we focus on earnings?
16:55
Speaker 1: Do we focus on inflation? Do we focus on recession?
16:57
Speaker 1: I don't know. I buy him when they're low and
16:59
Speaker 1: I pelomone they're high. That's what I was told my
17:01
Speaker 1: first day of paint Warber on the block trading desk,
17:03
Speaker 1: and it's worked so far. But Gina Martin Adams, she
17:05
Speaker 1: takes a much more analytical approach. She's a chief equity
17:08
Speaker 1: strategist at Bloomberg Intelligence Joint US here in Bloomberg Interactive
17:12
Speaker 1: Broker Studio, which we always appreciate. So, Gina, what am
17:15
Speaker 1: I focusing on this year in when I think about
17:18
Speaker 1: what where these markets are going to go? Well, I
17:21
Speaker 1: think the investor base is really focused predominantly on recession
17:25
Speaker 1: and what recession really means. If the US is in recession,
17:28
Speaker 1: is European recession? Are they? Are? They? Are? Are they not?
17:30
Speaker 1: When are they going to fall into recession? You know?
17:33
Speaker 1: I think frankly some of this intense focus on recession
17:37
Speaker 1: is really just misplaced. Because earnings behave differently in every
17:40
Speaker 1: kind of recession. We won't know we're in recession until
17:43
Speaker 1: probably when it's nearly over. If the official dating process,
17:48
Speaker 1: you know, follows it's normal historical trend. So what I
17:52
Speaker 1: think that we should be focused on is not always
17:54
Speaker 1: the same as well, we're focused on, And what we
17:56
Speaker 1: really should be focused on is the depth and duration
17:58
Speaker 1: of this earning cycle. Earnings peaked a year ago, they
18:02
Speaker 1: peaked at the end of one. They've contracted on an
18:05
Speaker 1: unadjusted basis seven percent so far. The analyst community is
18:09
Speaker 1: anticipating a ten peak to trough drop at least will
18:13
Speaker 1: probably end up somewhere closer to twelve if our work
18:17
Speaker 1: is correct. And that's what's gonna matter. It's timing the
18:20
Speaker 1: end of that earning cycle. When are we going to
18:21
Speaker 1: start to see improvement. How will the economy impact earnings
18:25
Speaker 1: is critically important for sure. Um And then also this
18:29
Speaker 1: the show, the show going on in FED policy, right,
18:33
Speaker 1: you can't get away from FED policy as a driver
18:35
Speaker 1: of valuations. So those are the two things. So if
18:37
Speaker 1: I look at the spars looking at the Bloomberg terminal
18:40
Speaker 1: like bucks or something, should they be more like two? Yeah?
18:45
Speaker 1: So this is an operating earnings number, right, And I
18:47
Speaker 1: think the construct is really difficult because when we look
18:50
Speaker 1: at the long term historical earnings trend, operating earnings have
18:52
Speaker 1: only been around for about thirty years. When you look
18:55
Speaker 1: at the long long term, we have to think about
18:57
Speaker 1: unadjusted earnings and how adjusted earnings behave during recession on
19:02
Speaker 1: an operating earning spasis, I do think we probably see
19:05
Speaker 1: about a five percent decline in EPs. But you've got
19:08
Speaker 1: to remember companies are sitting on just boatloads of cash.
19:10
Speaker 1: They're going to continue to buy back shares, They're going
19:12
Speaker 1: to continue to deploy that cash, and that's going to
19:16
Speaker 1: make adjusted earnings probably fall less than many people are anticipating,
19:21
Speaker 1: or fall less than your traditional recession decline on an
19:24
Speaker 1: on an unadjusted basis, though there is some evidence of distress.
19:27
Speaker 1: We're seeing it in margin contractions year over year, which
19:30
Speaker 1: are anticipated to finally bottom within the first half of
19:34
Speaker 1: this year. We're certainly seeing some distress evident in tech,
19:37
Speaker 1: particularly relative to expectations which were extremely high for that space.
19:43
Speaker 1: So I think you do need to sort of read
19:45
Speaker 1: between the lines and really articulate the details, because you
19:50
Speaker 1: can get a very confusing picture depending upon what you're following. Well, Gina,
19:54
Speaker 1: you sund I think maybe either Monday or Tuesday on
19:57
Speaker 1: Limerick surveillance in the morning. Something that really stuck with
19:59
Speaker 1: me with was sales are slowing down. Earnings on the
20:03
Speaker 1: top line perhaps aren't as much, but the sales is
20:05
Speaker 1: really a reflection of the macroeconomics slow down that you're seeing.
20:08
Speaker 1: At what point is that really punished more severely by
20:11
Speaker 1: the stock market as opposed to the expectation of that
20:14
Speaker 1: happening that we really perhaps priced in in the back
20:17
Speaker 1: half last year. Yeah, it is. It's an interesting complexity
20:20
Speaker 1: right now because sales, remember in two, were held up
20:24
Speaker 1: by this idea of inflation. So even though volume sales
20:29
Speaker 1: were clearly decelerating throughout two, we had inflating prices, in
20:32
Speaker 1: particular in the commodity space, energy and utilities mostly, but
20:36
Speaker 1: also you know, some other peripheral commodity segments where sales
20:40
Speaker 1: growth was very profoundly positive. And now, for the first
20:44
Speaker 1: time in a very long time, in the fourth quarter,
20:46
Speaker 1: in any season, it looks like sales growth is going
20:48
Speaker 1: to miss expectations. So we are seeing this inflation shift
20:52
Speaker 1: play out on the top line. Now, how much does
20:55
Speaker 1: that impact bottom line is really interesting to think about
20:58
Speaker 1: because so far bottom line is actually beating expectations because
21:02
Speaker 1: companies are enjoying the deceleration and commodity prices to produce
21:06
Speaker 1: stronger margins than anticipated. And that give and take is
21:10
Speaker 1: really important to consider because what happens with energy and utilities.
21:14
Speaker 1: As you know, commodity segments is meaningful for the overall
21:17
Speaker 1: headline index, but it also is meaningful for the rest
21:21
Speaker 1: of the constituents. And generally, what's great for energy is
21:24
Speaker 1: not so good for everybody else, and what's bad for
21:26
Speaker 1: energy is great for everybody else. And that dynamic is
21:29
Speaker 1: playing out right now. So talk to us about like
21:31
Speaker 1: the discounting mechanism that is the stock market. When do
21:34
Speaker 1: you think the stock market starts to say, I've seen
21:37
Speaker 1: the worst of inflation, I've seen the worst of rate increases,
21:40
Speaker 1: I've seen the worst of earnings reductions. I can now
21:44
Speaker 1: start discounting some better stuff going forward. What do you
21:48
Speaker 1: think that happens. I think it's been happening. I think
21:52
Speaker 1: that we got to our point of maximum pessimism back
21:55
Speaker 1: in September October, and since that period we've been starting
22:00
Speaker 1: to think about, Okay, how much worse can it get?
22:03
Speaker 1: How much did we already price? And even more importantly,
22:07
Speaker 1: what does the next cycle look like? And that's where
22:09
Speaker 1: I think we have this sort of really opaque challenge
22:13
Speaker 1: right now, is what is going to look like? Because
22:16
Speaker 1: we spent so much time of the last year talking
22:19
Speaker 1: about the recession coming. The market has certainly prepared to
22:23
Speaker 1: at least a moderate degree for this recession that we've
22:26
Speaker 1: all been talking about waiting for, trying to time. What
22:29
Speaker 1: I think we're going to continue to struggle with this
22:31
Speaker 1: year is what does the recovery look like in an
22:34
Speaker 1: environment where the FED probably doesn't backpedal to the normal degree,
22:37
Speaker 1: where they don't reduce rates to a lower level than
22:40
Speaker 1: they were at the end of the last cycle. That's
22:42
Speaker 1: impossible unless they go into negative territory, and so it
22:47
Speaker 1: seems also incredibly unlikely given the inflation dynamic and the
22:50
Speaker 1: general resilience of demand that we're experiencing. So I think
22:54
Speaker 1: that is the challenge. I think that's where the market
22:56
Speaker 1: is headed already, and we'll continue to head through. It's
22:59
Speaker 1: really pricing that outlook for recovery emerging in. Is there
23:04
Speaker 1: a threat here that sell off was overdone by any
23:08
Speaker 1: margin if you indeed get a soft landing from the Fed. Yeah,
23:12
Speaker 1: it does seem like, you know, at least the market
23:15
Speaker 1: seems to think that we overdid it. The market has
23:17
Speaker 1: had a very robust recovery from that that mid October low,
23:21
Speaker 1: So the market does seem that we overdid our expectations
23:25
Speaker 1: on at least the FED and probably the economy. But
23:29
Speaker 1: we're going to continue to argue about that creaty, I
23:31
Speaker 1: don't I don't think we know for yeah, we're going
23:34
Speaker 1: to continue to argue about that for a couple of
23:36
Speaker 1: quarters yet, because the FED seems to be pretty committed
23:39
Speaker 1: still to maintaining this high rate and yet the market
23:42
Speaker 1: is saying, oh, no, no, no, you're going to reduce
23:45
Speaker 1: interest rates like you always do in recession. And you know,
23:50
Speaker 1: to the market's credit, we haven't lived through that kind
23:52
Speaker 1: of environment. Right, For every recession experience going all the
23:56
Speaker 1: way back to the nineties, we've seen the FED reduced
23:59
Speaker 1: rates two lower levels than they ended in the last cycle.
24:03
Speaker 1: This is different, and you know, you hate to say
24:05
Speaker 1: that time that this time is different in this business.
24:08
Speaker 1: But from a policy perspective, the FED is definitely behaving
24:12
Speaker 1: quite differently than they have in recent recessions and we'll
24:15
Speaker 1: probably continue to do so, and that's going to continue
24:18
Speaker 1: to create friction, to say the least for the equity market.
24:21
Speaker 1: All right, good stuff, Gina Martin Adams. He's a chief
24:23
Speaker 1: equity strategist for Bloomberg Intelligence. Joining us here live in
24:26
Speaker 1: our Bloomberg Interactive Broker Studio. Always love getting Gina's perceptions
24:31
Speaker 1: of the market, where we think we are, where we've
24:33
Speaker 1: come from, and where we're going, so we appreciate her
24:36
Speaker 1: getting some time there. Another earning story in the news
24:43
Speaker 1: today Boeing. And this is a name I like the
24:45
Speaker 1: follower we're talking to, giant aerospace company, goes to the
24:47
Speaker 1: airline business, to travel business, all kinds of stuff. Here
24:51
Speaker 1: the numbers, it kind of looked in line to me.
24:53
Speaker 1: I know there's another loss, but let's put it in
24:55
Speaker 1: perspective here. The stock trading off about two point eight
24:57
Speaker 1: percent today is Boeing. It's got a hunter twenty three
25:00
Speaker 1: billion dollar market cap, so it's it's a big one.
25:03
Speaker 1: George Ferguson, Senior industry analyst at Bloomberg Intelligence. He covers
25:06
Speaker 1: the airspace companies as well as the airlines the end customers. George,
25:10
Speaker 1: thanks so much for taking the time to join us here.
25:12
Speaker 1: I know you're busy talk to us about Boeing here.
25:15
Speaker 1: What's your takeaway from what we heard from the folks
25:18
Speaker 1: that are based in Point I guess they're Washington now, right, George.
25:22
Speaker 1: Actually I think they're based out of yes, sorry Washington,
25:24
Speaker 1: d C. Right, Virginia, Virginia. But we know they build
25:29
Speaker 1: all those great airplanes. It's still Seattle for me, dude.
25:31
Speaker 1: The worst worst decision you ever made was leaving Seattle.
25:35
Speaker 1: So yeah, so we um, we saw them, you know,
25:38
Speaker 1: bring earnings today and yeah, the markets off, but remember this,
25:42
Speaker 1: the stock has seen a lot of rally over um,
25:44
Speaker 1: you know, through the fourth quarter at the end of
25:46
Speaker 1: the year a bit so um. I don't know that
25:49
Speaker 1: I'd get too excited yet. I think, you know what
25:51
Speaker 1: I think we've heard so far. They're just a huge
25:54
Speaker 1: amount of new details we're getting out of them. But
25:58
Speaker 1: you know, I think the bigger thing is that by
26:00
Speaker 1: chain is still going to be a problem in three right,
26:02
Speaker 1: But I think we all kind of knew that, but
26:05
Speaker 1: we were I think maybe hoping we'd hear better discussion
26:08
Speaker 1: about how supply chains were turning the corner. And there's
26:12
Speaker 1: visibility on that improvement, you know, And so some of
26:15
Speaker 1: the some of the guidance for the year, it's like
26:17
Speaker 1: on seven thirty seven, right, but they're saying, look, the
26:20
Speaker 1: low end of our guidance means we're gonna deliver thirty
26:22
Speaker 1: one seven thirty seven's a month throughout the year and
26:25
Speaker 1: on the high end means we break to like a
26:27
Speaker 1: forty one, you know, maybe sometime in the back half
26:30
Speaker 1: of the year. But they don't know because they just
26:33
Speaker 1: don't know if they can get supply chain stabilized enough
26:36
Speaker 1: to do that. And and that's key to this company,
26:39
Speaker 1: right The key to the company is getting commercial airplane
26:42
Speaker 1: that division moving profitable um and that really takes that,
26:47
Speaker 1: you know, that stabilization in the supply chain, higher rates,
26:50
Speaker 1: which absorb the overhead better, you know. So again, I
26:54
Speaker 1: think visibility kind of lacking on that, and I think
26:57
Speaker 1: the market wants more visibility and that supply chain, hoping
26:59
Speaker 1: it would be a better story. We hear the same
27:01
Speaker 1: from raytheon yesterday, So I think it's it's you know,
27:05
Speaker 1: it's a wait and see on supply chains. George, to
27:08
Speaker 1: what extent is that going to prolong the backlog that
27:12
Speaker 1: we're seeing for Boeing, Because if correctly, if I'm wrong,
27:15
Speaker 1: really the fourth quarter was when they really stepped up
27:17
Speaker 1: some of their jet deliveries. What kind of pressure does
27:20
Speaker 1: that supply chain issue put on the backlog? Yes, So
27:25
Speaker 1: I mean what we one it extends you know, the
27:27
Speaker 1: existing backlock of airplanes they've they've sold UM and Bowing
27:32
Speaker 1: has a little bit of a catch up to do
27:34
Speaker 1: against Airbus still, and I would think they could break
27:38
Speaker 1: to m They'll be breaking rates or you know, moving
27:40
Speaker 1: to higher rates UM probably easier than Airbus because Airbus
27:45
Speaker 1: is at higher levels already. So I don't I don't
27:48
Speaker 1: think it hurts the ability to sell airplanes, is what
27:50
Speaker 1: I'm sort of getting out. They may even have a
27:52
Speaker 1: better they may maybe have a better position to sell
27:55
Speaker 1: airplanes than Airbus because I think there's more near term
28:00
Speaker 1: delivery spots that you could probably get if you're a customer.
28:04
Speaker 1: But again, I think, you know, we all saw kind
28:06
Speaker 1: of December deliveries. They were strong, they were they were
28:11
Speaker 1: they were really nice, right and they and they led
28:13
Speaker 1: to the I think, you know, better than expected results
28:15
Speaker 1: in four que and I think the market, you know,
28:18
Speaker 1: I thought the story would continue like that and it
28:20
Speaker 1: would be more of it today where we're just hearing yep,
28:24
Speaker 1: you know, challenges in supply chains. So we're specifically are
28:29
Speaker 1: the challenges because I think I'm at the point of
28:31
Speaker 1: saying I'm calling bs on the supply chain. Excuse I
28:34
Speaker 1: don't care what kind of company you are. So where
28:37
Speaker 1: are they seeing it from? In particular the brutal Sweeney call. Yeah, well,
28:41
Speaker 1: I mean so you know, engines are one that everyone
28:45
Speaker 1: points to. And you know, yesterday Raytheon on their earnings
28:49
Speaker 1: called cited castings and forgings. Right, we've heard castings and forgings.
28:54
Speaker 1: They were the limited at the at the tail end
28:57
Speaker 1: of the last decade when we were breaking direct levels
29:01
Speaker 1: of aircraft production for the seven three, seven and h
29:03
Speaker 1: V twenty castings and forgings. There is no no no, no, no, no,
29:08
Speaker 1: no no no. It's a U it's a US Europe thing.
29:12
Speaker 1: But it's very skilled labor, right, And so to the
29:14
Speaker 1: extent you lost any of that skilled labor during the
29:17
Speaker 1: pandemic and said, hey, we're cutting rate, we don't need
29:19
Speaker 1: all you folks. People walked away, retired, whatever, you've got
29:23
Speaker 1: to bring new people back in and teach them how
29:25
Speaker 1: to do castings and forgings. I wish I knew even
29:29
Speaker 1: more about it, and about to go, you know, get
29:30
Speaker 1: a job a volunteer to be like an intern in
29:32
Speaker 1: the casting and forging the department that the Raytheon to
29:35
Speaker 1: figure out more. But we keep hearing that and the
29:37
Speaker 1: other and the other truth I think is I think
29:40
Speaker 1: the smaller the supplier is and remember the supplier base
29:44
Speaker 1: can be quite small for aerospace because volumes in some
29:47
Speaker 1: programs just aren't that large. And the smaller the supplier,
29:52
Speaker 1: I think, the less visibility, right that sort of the
29:55
Speaker 1: following an airbus have they got to really dig deep
29:56
Speaker 1: because they're multiple tiers down and those people are having
30:00
Speaker 1: problems hiring people still, right because they're not offering the
30:03
Speaker 1: best wages. They're not offering the best um uh you know,
30:07
Speaker 1: incentive packages. So raytheon Boeing Airbus they can fill their
30:12
Speaker 1: factors and people ready to do work. But when you
30:15
Speaker 1: get down to those lower tiers, they're still scrapping to
30:17
Speaker 1: bring people in it and then train them to do
30:20
Speaker 1: the job they got to do, right, So that's a challenge. Well, George,
30:23
Speaker 1: when we're talking about Bowing specifically as a company, the
30:26
Speaker 1: supply to an issues aside to what extent is it
30:29
Speaker 1: turning in away from defense more to in line with
30:33
Speaker 1: the airline industry when it comes to exposure in a
30:36
Speaker 1: ton when it comes to industry, it feels like in
30:38
Speaker 1: the last couple of years it's doing less and less
30:40
Speaker 1: with government contracting. Yeah, so I would say, um, what
30:44
Speaker 1: we saw at the tail end of the last decade
30:46
Speaker 1: was definitely the company was moving more commercial. I think
30:49
Speaker 1: commercial the challenge in these businesses, or maybe it's you know,
30:53
Speaker 1: it's a it's a benefit, it's a it's a balance er.
30:56
Speaker 1: I mean, commercial can take off right there, you know
30:58
Speaker 1: what you're get in this situation, and so to speak,
31:00
Speaker 1: right where airlines just start to need a lot more airplanes.
31:04
Speaker 1: Global air growth, air travel growth is taking off, and
31:08
Speaker 1: they're booking all these orders and the commercial side really
31:10
Speaker 1: outweighs defense. The beauty of these companies is usually that
31:14
Speaker 1: when that when that commercial cycle goes, you know, goes
31:19
Speaker 1: into a relaxation mode, is less less intense. The defense
31:23
Speaker 1: helps keep the lights on. It's a very stable business.
31:26
Speaker 1: It usually very profitable, good cash flows. So you know,
31:29
Speaker 1: we kind of in the beginning of the pandemic we
31:31
Speaker 1: saw some of that defense stabilizing a Boeing. But what
31:34
Speaker 1: I'd say where they are right now is they I
31:36
Speaker 1: don't think they've de emphasized defense at all. I think
31:39
Speaker 1: part of that move to Washington was about getting back
31:42
Speaker 1: in touch with their defense customers a bit better. They
31:46
Speaker 1: have some great products. Case. The tanker is very important
31:50
Speaker 1: for US, uh, you know, it's power projection ability. Tankers
31:55
Speaker 1: are just hugely important. That the current fleet's fifty years old. Um,
31:59
Speaker 1: you know, they've got some great products in there. But
32:02
Speaker 1: right now, margins are hurting bad. They bit a bunch
32:05
Speaker 1: of projects, um that were fixed cost that they took
32:08
Speaker 1: serious losses on. You know, so we're down the down
32:11
Speaker 1: in the low single digits on margins in a business
32:14
Speaker 1: that should just traditionally should be tennish. But I still
32:17
Speaker 1: think the company sees the value of that portfolio. They
32:21
Speaker 1: continue to talk about it. But I would expect as
32:23
Speaker 1: we get into another commercial upswing, which I think we're
32:26
Speaker 1: kind of going to get here, that they commercial Eclipse Defense.
32:30
Speaker 1: But I think it's still super important, and it's embedded
32:33
Speaker 1: in global services as well, which is a which is
32:36
Speaker 1: a nice cash generator. All right, George, great stuff as always.
32:39
Speaker 1: George Ferguson, senior Airspace, Defense and Airline analyst for Bloomberg Intelligence,
32:43
Speaker 1: former military intelligence officer in the U. S. Army. So
32:46
Speaker 1: we thank him for service. Maybe most importantly, he's a
32:49
Speaker 1: proud undergraduate of the Penn State University. He's a proud alumni.
32:53
Speaker 1: They're talking about Boeing. Uh commercial business got some challenges
32:58
Speaker 1: near term, of long term sounds pretty solid. One of
33:04
Speaker 1: the few few areas that did well last year, and
33:08
Speaker 1: I mean really well, is energy. Um Why did they
33:12
Speaker 1: did rip it last year? The question is what do
33:13
Speaker 1: we do from here? Like that? I missed that trade,
33:15
Speaker 1: like I might have missed a few other trades in
33:18
Speaker 1: my career. Ben Cook, he knows all about this stuff.
33:20
Speaker 1: He's a portfolio manager at Hennessey Funds. So Ben, again,
33:24
Speaker 1: did Sweeney miss the energy trade here? That just ripped
33:27
Speaker 1: in two? Yeah? Good morning, Paul, thanks for having me.
33:32
Speaker 1: I think three stands to be another good year for energy,
33:35
Speaker 1: and you consider continued improvement in the commodity markets UMU,
33:40
Speaker 1: continued favorable valuation across much of the hydrocarbon sector, and
33:44
Speaker 1: of course the continued allocation of capital back to investors
33:49
Speaker 1: and former share repurchases and dividends. All those combined make
33:51
Speaker 1: for a pretty attractive investment case. So I think twenty
33:54
Speaker 1: three is going to be another good year. I don't
33:55
Speaker 1: think you missed out. Are we looking at a hundred
33:58
Speaker 1: dollar oil again? In Yeah? It's very likely that we
34:03
Speaker 1: see improving commodity fundamentals, including crude oil fundamentals, in the
34:07
Speaker 1: coming twelve month period. I think, you know, the reopening
34:10
Speaker 1: of China, easing of COVID lockdown policy. As recent as
34:13
Speaker 1: the Chinese lunar New Year, we saw rebound and dramatic
34:17
Speaker 1: rebound and jet travel and that a bodes well for
34:21
Speaker 1: increased consumption across the region and passenger mobility. And I
34:25
Speaker 1: think you know, if we continue to see growth there
34:28
Speaker 1: and modest GDP growth here, uh, we could very easily
34:33
Speaker 1: see oil over a hundred dollars over the next twelve months.
34:35
Speaker 1: So Ben, I know, what's worked for energy equity investors
34:41
Speaker 1: creditors has been what the energy folks like to call discipline,
34:46
Speaker 1: not taking advantage when it's eighty or abound and started
34:49
Speaker 1: drilling holes in the ground, which is what I instinctively
34:51
Speaker 1: would do. UM talk to us about that. I mean,
34:56
Speaker 1: you know, I mean, it seems to me there seems
34:58
Speaker 1: to be I don't know if energy shortage, but certainly
35:00
Speaker 1: there's a shortage in Europe. But it seems like we
35:03
Speaker 1: still need more carbon energy out there in the marketplace
35:06
Speaker 1: while we make this transition to um greener energy. But
35:11
Speaker 1: I guess there's just no real incentives for the energy
35:14
Speaker 1: guys to build a new refinery or or you know,
35:17
Speaker 1: kind of drill more wells. Where are we on that
35:21
Speaker 1: whole front. Yeah, the whole capital discipline phenomenon really, you know,
35:26
Speaker 1: it's been a part of the investment narrative for the
35:29
Speaker 1: large cap integrated group for some time, but the E
35:31
Speaker 1: and P companies here in the US have really adhered
35:34
Speaker 1: to this dramatically over the last eighteen months, close to
35:37
Speaker 1: two years. And you know, I think historically the industry
35:40
Speaker 1: has ramped spending in a procyclical manner, meaning, you know,
35:44
Speaker 1: spending would rise as commodity prices, prices would increase, and
35:48
Speaker 1: ultimately as the cycle would turn and commodity prices would
35:51
Speaker 1: go lower, many of the companies would be left with
35:53
Speaker 1: significant debt and their equity values would come under pressure,
35:57
Speaker 1: uh during a downturn. And rather than do that, what
36:02
Speaker 1: we've seen recently are these companies have become smarter about
36:06
Speaker 1: spending their money. They realize that equity values can rise
36:10
Speaker 1: without the expansion and production and development activity, and it's
36:15
Speaker 1: it's the return of capital that actually the shareholders are
36:18
Speaker 1: rewarding them for and so we see that that persisting.
36:22
Speaker 1: I'd say the other part of it, too, is just
36:23
Speaker 1: the uncertainty associated with government policy. The regulations typically come
36:29
Speaker 1: in the form of a character stick, and here in
36:31
Speaker 1: the US, over the last several years we've we've had
36:34
Speaker 1: more of a stick as opposed to accarrot with the
36:36
Speaker 1: traditional hydrocarbon sector. So it's been a combination of a
36:39
Speaker 1: couple of things. But Fay capital discipline is all well
36:42
Speaker 1: and good, and of course the stick coming from Washington
36:45
Speaker 1: as well. But I'm curious how much of this was
36:47
Speaker 1: simply a function of what Paul doesn't like to talk
36:50
Speaker 1: about supply chain issues. Um, but when it comes to
36:53
Speaker 1: some of these oil companies, were they being capitally disciplined
36:57
Speaker 1: or were they being restrained by some of the supply
37:00
Speaker 1: lighting issue that they have or both? Yeah, I think
37:03
Speaker 1: to a degree there have been some supply chain issues
37:06
Speaker 1: when you talk about the oil field service industry. Certainly
37:09
Speaker 1: capital equipment is a necessity in terms of being able
37:13
Speaker 1: to employ the machinery that goes to work, to to drill,
37:17
Speaker 1: to to develop frac, etcetera, ultimately expand the capacity. So
37:22
Speaker 1: there was some of that. I don't feel as though
37:24
Speaker 1: the industry is dealing with dramatic challenge associated with supply
37:30
Speaker 1: chain issues today. I think the more pressing issue for
37:33
Speaker 1: the upstream sector here in the United States and maybe
37:35
Speaker 1: to a lesser extent abroad, is the lack of availability
37:39
Speaker 1: of of of workers. UM. You know, whether it's you know,
37:43
Speaker 1: driving trucks to handle water or uh, you know, operating
37:48
Speaker 1: frack machinery. Uh, there is a shortage of available of workers,
37:53
Speaker 1: skilled workers to to put to work in in the
37:56
Speaker 1: oil field service business and in the integrated and the
37:59
Speaker 1: mp UH sectors as well. So that that's a real
38:02
Speaker 1: challenge the industry is going to have to contend with it. Ben,
38:06
Speaker 1: what does China reopening mean for the energy space both
38:09
Speaker 1: from a supply and demand perspective, It would seem to
38:13
Speaker 1: me would be positive on the net. Yeah, there's no
38:16
Speaker 1: question the reopening of China is a positive on on
38:19
Speaker 1: a net net basis. UH. In terms of incremental growth,
38:22
Speaker 1: Southeast Asian demand is is the largest component of the
38:27
Speaker 1: expansion in the world's growing appetite for crude oil demand.
38:31
Speaker 1: And you know it's it's um when you think about
38:34
Speaker 1: transportation that the jet fuel demand, the passenger mobility associated
38:39
Speaker 1: with rail and cars. There's no question that that's going
38:43
Speaker 1: to going to create a major tail win for demand
38:46
Speaker 1: going forward. And it's not just China, it's neighboring countries
38:49
Speaker 1: as well. Um, there's a significant appetite. I think the
38:53
Speaker 1: the i e. A recently published some forecasts of significant
38:56
Speaker 1: growth in on the back of Chinese demand. You know,
39:01
Speaker 1: in terms of our view, we expect global demand growth
39:04
Speaker 1: on the order of two to two and a half
39:05
Speaker 1: million barrels this year, partly on on base effects associated
39:09
Speaker 1: with slowdown in China last year. But that's a meaningful
39:12
Speaker 1: incremental uh, you know, incremental growth amount of crude oil
39:18
Speaker 1: demand that should come this year and end up again
39:20
Speaker 1: provide a tail win to pricing. And again on the
39:24
Speaker 1: supply side, you know, capital discipline here a very steady
39:28
Speaker 1: opeque uh supply policy. I think the combination of those factors,
39:34
Speaker 1: you know, could easily send prices over a hundred dollars
39:36
Speaker 1: as we as we just discussed ben can the world
39:40
Speaker 1: live without Russian crude in In the long term we
39:42
Speaker 1: seem to be doing okay now, but long term, yeah,
39:47
Speaker 1: longer term rush is a major supplier to the global market.
39:51
Speaker 1: Producing roughly ten eleven million barrels a day. You know,
39:54
Speaker 1: whether it's price caps or embargoes or sanctions, that industry
39:58
Speaker 1: is going to face some challenges. In the world experienced
40:00
Speaker 1: supply disruption, There's no no doubt about that. We would
40:03
Speaker 1: anticipate over the coming years that as embargoes and sanctions
40:07
Speaker 1: kick in, that capacity will will begin to shrink in
40:10
Speaker 1: that country and it will diminish. In the meantime. UM
40:15
Speaker 1: supplies coming from Russia are making their way to India
40:18
Speaker 1: and China. Um. You know that that's important volume that
40:22
Speaker 1: you know, without those supplies, prices would be much much higher.
40:26
Speaker 1: So on a on a short term basis, we still
40:29
Speaker 1: need to live with Russian crude, and even on a
40:31
Speaker 1: longer term basis, it's hard to envision the scenario, a
40:35
Speaker 1: global supply picture without Russian crude. It's just kind of
40:38
Speaker 1: the dumb question today. Is China a net importer or
40:41
Speaker 1: exporter of oil? They are a net importer? Uh, significant
40:46
Speaker 1: net importerer? Yes, they are the Middle East? Uh? And
40:49
Speaker 1: what a Russia's best clients got you? Okay, interesting to
40:52
Speaker 1: see how that reopening plays in this marketplace. Ben Cook,
40:55
Speaker 1: He's portfolio manager at Hennessey Funds. Over the Hennessey Funds,
40:58
Speaker 1: he manages Hennessy Energy Transition Fund and Hennessey Midstream Fund,
41:03
Speaker 1: so kind of in the UH, you know, the old energy,
41:06
Speaker 1: the new energy. They invest in both. So it's great
41:09
Speaker 1: to get bens perspective on all things energy. Talking about
41:12
Speaker 1: maybe another move back to a hundred dollar oil w
41:15
Speaker 1: T A crude oil right here is eighty dollars cents
41:18
Speaker 1: a barrel, a little bit off the lows we saw
41:20
Speaker 1: recently when't got down to about seventy dollars about Thanks
41:25
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
41:29
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
41:33
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
41:36
Speaker 1: Matt Miller three. Put on false Sweeney I'm on Twitter
41:40
Speaker 1: at pt Sweeney Before the podcast. You can always catch
41:43
Speaker 1: us worldwide at Bloomberg Radio