Latest / Bloomberg Intelligence / Software Will Be Near-Term Tech Outperformer: Wedbush's Ives

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Software Will Be Near-Term Tech Outperformer: Wedbush's Ives · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:18
  Speaker 1: at Bloomberg dot com. Right now, let's take a look
• 0:21
  Speaker 1: at technology. We have earning a season about to begin
• 0:25
  Speaker 1: in earnest tomorrow with the banks releasing their numbers, and
• 0:28
  Speaker 1: then following that will be a whole host of industries
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  Speaker 1: and companies including technology. Uh will technology lead us out
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  Speaker 1: of this crisis? In terms of the market when the
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  Speaker 1: market really starts to move up, we've seen a nice
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  Speaker 1: rebound here. Where will technology be? There's nobody better to
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  Speaker 1: chat about technology and tech stocks than Dan Ives, managing
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  Speaker 1: director for equity research at What Bush Securities, that joins
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  Speaker 1: us on the phone. Dan, thanks so much for joining us.
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  Speaker 1: Give us a sense of just over to pass month
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  Speaker 1: or so as the markets have gyrated? How is big
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  Speaker 1: tech performed? Book? And it's great to be here. Big
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  Speaker 1: Tech I think is performed as well and maybe even
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  Speaker 1: better than anyone could have thought in light of the pandemic.
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  Speaker 1: I think what you're starting to see is the stronger
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  Speaker 1: getting stronger on the other side of the dark valley,
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  Speaker 1: the Amazon's, the Microsoft's, some of the large tech players
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  Speaker 1: that like Facebook included, and I think investors they're looking
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  Speaker 1: onto the other side of dark valley. In other words,
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  Speaker 1: where are these stocks? Where are the valuations in a
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  Speaker 1: normalized or at least a new normal two thousand twenty
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  Speaker 1: one numbers right in the next quarter or two. And
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  Speaker 1: that's why you're seeing a flock to tech stocks, especially
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  Speaker 1: even in some of these more defensive plays like a Microsoft.
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  Speaker 1: So one thing that you wrote in a note was
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  Speaker 1: that the pandemic will further catalyze the massive shift to
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  Speaker 1: cloud computing. And I'm wondering to what degree that's already
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  Speaker 1: priced in and where isn't it right now? Yeah, I
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  Speaker 1: think it's it's starting to get priced in, maybe on
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  Speaker 1: a Microsoft and some of the larger tech players like
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  Speaker 1: an Amazon with the a WSPS, I do not think
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  Speaker 1: it's priced in. Really across software, I think you're you're
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  Speaker 1: gonna see some of these software names forget just the
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  Speaker 1: zooms and the slacks and some of the core applications
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  Speaker 1: like citrics, but underneath a lot of the stacked names,
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  Speaker 1: the infrastructure, the tech stack, which is really application and
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  Speaker 1: sass cross software. I think those are names that we
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  Speaker 1: continue to see, uh. You know, I think from a
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  Speaker 1: rereading perspective go higher as I think you see more
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  Speaker 1: investors go to those names in terms of the cloud stack,
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  Speaker 1: and I think software is going to be a bigger
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  Speaker 1: outperformer over the next three to six months in our opinion.
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  Speaker 1: So Dan, one of the things that's one of the
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  Speaker 1: concerns that's been heightened not just with the pandemic here,
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  Speaker 1: but also the trade tensions with China months ago, which
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  Speaker 1: seems like a lifetime ago. Is a whole concept of
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  Speaker 1: supply chain. Um, how do you think the tech supply
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  Speaker 1: chain uh may change as a result of again depending
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  Speaker 1: the continuous trade attentions for China, but also uh, the
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  Speaker 1: pandemic here. Yeah, I think the pandemic it's highlighted, as
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  Speaker 1: we've talked about many times even last year with the
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  Speaker 1: US China trade wars, just how heavily exposed US tech
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  Speaker 1: or broader tech Semi's smartphones is to the supply chain
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  Speaker 1: across Asia, and as much as there's tough talk, I
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  Speaker 1: just don't see that dramatically changing over the next two
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  Speaker 1: to three years. Because we talked about there's comings Like Apple,
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  Speaker 1: they made their bed in China in terms of fox
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  Speaker 1: Con that's that is iPhone production. So ultimately, I think
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  Speaker 1: if you look at that and semmis, you can still
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  Speaker 1: see some production potentially moved to Vietnam and other parts
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  Speaker 1: of Asia, but at least for the foreseeable future, I
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  Speaker 1: do not see dramatic changes to the supply chain. The
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  Speaker 1: one thing I will say in why of this dark environment,
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  Speaker 1: you are starting to see some bright spots on the
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  Speaker 1: supply chain, which I'm starting to normalize, I think quicker
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  Speaker 1: than expected by call it early to mid May. So
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  Speaker 1: that's actually where I was going to go. People have
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  Speaker 1: been talking about the pitfalls of having a global supply chain.
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  Speaker 1: What about the benefits as China reopens, right, I mean
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  Speaker 1: we saw better deliveries than expected, or you're expecting better
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  Speaker 1: deliveries with Tesla and with Apple you're starting to see
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  Speaker 1: some of the factories rev backup. Is it's actually a
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  Speaker 1: benefit at this point? Yeah, And I think right now
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  Speaker 1: is us or European consumers are locked down in their
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  Speaker 1: houses focused on essentials. In China, they're buying iPhones and
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  Speaker 1: Tesla's and I think it speaks to one of the
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  Speaker 1: factors that's helping the likes of an Apple a Tesla
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  Speaker 1: because a gig of three in China. It is some
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  Speaker 1: of that diversification. And you're not just seeing from a
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  Speaker 1: supply chain in terms of protesting gig of three and
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  Speaker 1: for Apple, you're also thinking from a demand perspective. And
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  Speaker 1: I do think that's something where when you get back
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  Speaker 1: to the earlier about tech, one of the things that's
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  Speaker 1: helping some of these companies is what they're seeing in
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  Speaker 1: the supply chains was demand throughout China, which I could
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  Speaker 1: tell you're starting to rebound pretty significantly even over the
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  Speaker 1: last two to three weeks. So Dan talk to us
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  Speaker 1: about Tesla a little bit here. I mean, it just
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  Speaker 1: the concerns, I mean, you know, the issue I'm wondering
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  Speaker 1: if the consumers are going to be changing their behavior
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  Speaker 1: coming out of this pandemic, and one of the areas
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  Speaker 1: that people are thinking about it's just kind of the
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  Speaker 1: role of the automobile. How's Tesla doing through all of
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  Speaker 1: this look, and I think you've seen in the stock,
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  Speaker 1: especially coming off the better than expected delivery numbers which
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  Speaker 1: were reset lower a few weeks ago for one queue.
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  Speaker 1: You know, bulls in Tesla are looking on the other
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  Speaker 1: side of this, not the next quarter or two, but
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  Speaker 1: in terms of ev demand, and Tula was really starting
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  Speaker 1: to game more more esteem, not just in China but
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  Speaker 1: across Europe. I do think when you talk about just
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  Speaker 1: the horrific unemployment and just what you're seeing just across
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  Speaker 1: the consumer landscape, you are seeing a slow down and
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  Speaker 1: you'll see that. I mean, just put numbers around it.
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  Speaker 1: The street originally was at five thirty or five and
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  Speaker 1: fifty thousand units for Tesla. Now we're close to four hundred,
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  Speaker 1: four hundred k. But part of why a stock like
• 6:26
  Speaker 1: Testa continues to outperform is because investors feel like it
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  Speaker 1: can navigate it. They obviously raise the cash to get
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  Speaker 1: through it from aquity perspective, and on the other side
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  Speaker 1: of this could start to thrive from an e V
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  Speaker 1: perspective in terms of some of the demand turns. Dad,
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  Speaker 1: just real quick here, I'm wondering how the drop off
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  Speaker 1: an oil prices will affect EVY demand given the fact
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  Speaker 1: that it's a lot cheaper to fill up your car. Yeah,
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  Speaker 1: it's definitely. Uh, that's definitely a headwind for e V.
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  Speaker 1: Now some argue Tesla is more have fun, Like I
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  Speaker 1: still believe that's a called five percent headwind in terms
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  Speaker 1: of just what you're seeing on oil prices and gasoline prices,
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  Speaker 1: especially for new entrants like you're seeing Detroit focus more
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  Speaker 1: and more on the battery side and e V in
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  Speaker 1: terms of what's happening to win one gas. That is
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  Speaker 1: an ultimate headwind for e V players. Although you look
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  Speaker 1: at Tesla and what Musk has been able to do,
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  Speaker 1: you know, much better than feared, and that's why you
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  Speaker 1: see the stock rallying even in this dark environment. Den
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  Speaker 1: i'ves thank you so much, of course, uh Dan Ives
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  Speaker 1: of wet Bush Securities, Managing director of Equity Research. There's
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  Speaker 1: an incredible and growing dissonance between the economic data that
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  Speaker 1: we're getting with an increasing amount of jobless claims that
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  Speaker 1: defy any historical precedent, and then markets, which last week
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  Speaker 1: had their best rally since nineteen seventy four in the
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  Speaker 1: United States, and it's led Goldman sack strategies to actually
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  Speaker 1: revise their estimate it's for year end SMP levels upwards,
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  Speaker 1: saying that they really have faith in the fiscal and
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  Speaker 1: the in the monetary policy stimulus that we're seeing. And
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  Speaker 1: this really raises a question, how much can you just
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  Speaker 1: put blind faith in stimulus at a time when companies
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  Speaker 1: are flying blind when it comes to earnings and growth
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  Speaker 1: and profitability. Joining us now, we're so lucky to have
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  Speaker 1: Hugh Johnson, Chairman and Chief investment officer of Hugh Johnson
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  Speaker 1: Adviser is based in Albany, and Hugh, how much do
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  Speaker 1: you have conviction in the stimulus that we're seeing out
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  Speaker 1: of Washington, d C And the Federal Reserve at this
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  Speaker 1: point to continue to prop up equity valuations despite the
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  Speaker 1: big black hole that is forecasts from companies. Well, we
• 8:42
  Speaker 1: had a positive response last week. You know, when I'm
• 8:44
  Speaker 1: asked a question like that, I have to an uh
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  Speaker 1: answer honestly, Lisa and say, I really don't know. I
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  Speaker 1: am a bit skeptical because I'm not sure to addresses
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  Speaker 1: really well the demand side of the sequaya. And but
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  Speaker 1: what I'm asked the question is it gonna work or
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  Speaker 1: is it not gonna work? I really have to turn
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  Speaker 1: to investors and investors tend to get it right. They
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  Speaker 1: tend to assess what the outcome is going to be
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  Speaker 1: in the answer we got last week is that the
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  Speaker 1: stimulus that we're getting is going to have some impact. Now,
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  Speaker 1: it's not going to have any impact on the second quarter,
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  Speaker 1: the current quarter, which is going to be the most
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  Speaker 1: dismal quarter we've ever seen with g DP being down
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  Speaker 1: around twenty But the real question isn't the second quarter.
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  Speaker 1: The real question is third and fourth quarter. And I
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  Speaker 1: might add first two quarters of two thousand twenty one.
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  Speaker 1: And I think the answer has to be unbalanced based
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  Speaker 1: on what I saw from investors last week. Is let's
• 9:47
  Speaker 1: say it's going to be a positive impact, or we
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  Speaker 1: may turn the corner, maybe not the third quarter, but
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  Speaker 1: by the fourth quarter will have positive economic growth. So
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  Speaker 1: you give us just a sense of how you think
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  Speaker 1: this federal stimulus is going to really ripple through the economy.
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  Speaker 1: Is are we going to see it on main street,
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  Speaker 1: the small and midsized businesses, the consumers, as Lisa mentioned
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  Speaker 1: that job losses. Are we going to see that impact
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  Speaker 1: the real economy? Uh, to some extent, it's gonna I
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  Speaker 1: I don't know it's gonna be that significant. Take a
• 10:22
  Speaker 1: look at the p p P program and some of
• 10:24
  Speaker 1: the numbers that we're seeing. They're assuming that we get
• 10:27
  Speaker 1: enough banks, and assuming the banks get organized, and assuming
• 10:32
  Speaker 1: the banks can make those loans with two small businesses,
• 10:36
  Speaker 1: and those loans are going to turn into grants. The
• 10:39
  Speaker 1: demand is right through the roof. Now, what are those
• 10:42
  Speaker 1: businesses gonna do? Well. One of the things they're gonna
• 10:45
  Speaker 1: do where they're supposed to do is to keep the
• 10:49
  Speaker 1: current employees employed and hopefully that helps. That's going to
• 10:54
  Speaker 1: help some, but it's not going to help much until
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  Speaker 1: we get again to the third the fourth quarter when
• 11:00
  Speaker 1: we look at the second quarter numbers. As Lisa was
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  Speaker 1: was suggesting, the claims numbers, the loss of jobs in
• 11:10
  Speaker 1: the second quarter, Uh, the unemployment rate itself, Uh, they're
• 11:15
  Speaker 1: gonna be really bad reading, as bad reading as you've
• 11:18
  Speaker 1: ever seen. But third quarter we might see some results.
• 11:22
  Speaker 1: And there are other programs from the federal government. Um,
• 11:25
  Speaker 1: you know that I think we'll have some positive impact
• 11:28
  Speaker 1: that loans for example, to municipalities, counties and cities that
• 11:34
  Speaker 1: qualify and you've got to be kind of big to qualify,
• 11:37
  Speaker 1: that might help them through some tough times. When their
• 11:40
  Speaker 1: revenues from taxes are gonna be just about nonexistent. So
• 11:45
  Speaker 1: it'll help, It will help some, it'll get us through
• 11:47
  Speaker 1: a tough period. But the real key is we've got
• 11:50
  Speaker 1: to have businesses come back to work and start to work.
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  Speaker 1: And I think we'll start to see that, not in
• 11:57
  Speaker 1: the second quarter, but probably the third quarter, receive some
• 12:00
  Speaker 1: results in the third. Going across my fingers anyway, so
• 12:04
  Speaker 1: you're buying stocks right now, Well, that's a good question
• 12:08
  Speaker 1: to know. That's in some ways it isn't it. It is. Yes,
• 12:11
  Speaker 1: we are buying up, but we're still maintaining our meaningful
• 12:16
  Speaker 1: sort of a meaningful allocation to equities. We did trim
• 12:21
  Speaker 1: our allocation equities. We cut back international, we cut back
• 12:25
  Speaker 1: small and mid camp. If an investor comes to us
• 12:28
  Speaker 1: and says i've got a fifty percent target for stocks,
• 12:31
  Speaker 1: we're right around that fifty mark. We're not down at thirty,
• 12:36
  Speaker 1: which we'd be if we were really barrish or worried.
• 12:39
  Speaker 1: We're still around fifty. But if you look carefully at
• 12:43
  Speaker 1: the portfolio, you'll see two things. You'll see one, it's
• 12:47
  Speaker 1: a very defensive portfolio. It emphasizes overweights. If you may
• 12:51
  Speaker 1: things like health care, utilities, staples, so things that do
• 12:55
  Speaker 1: well in a bear market. It overweights stocks with dividends
• 12:58
  Speaker 1: in them. That's its defensive portfolio. But if you look carefully,
• 13:03
  Speaker 1: you'll see we're starting to consider that. Look, this bear
• 13:07
  Speaker 1: market is gonna end maybe third quarter, maybe first quarter
• 13:10
  Speaker 1: two thousand twenty one. And when we end a bear
• 13:13
  Speaker 1: market and start a bull market sometime maybe in two
• 13:16
  Speaker 1: thousand twenty one, hopefully stocks that are gonna work are
• 13:20
  Speaker 1: the same old ones that always work, and that's technology,
• 13:23
  Speaker 1: consumer discretionary stocks, industrials, and materials. Will start to add
• 13:28
  Speaker 1: a little bit of that now, but not much. We're
• 13:32
  Speaker 1: let's say, staging in staging and all right, just like
• 13:36
  Speaker 1: Tom Keene staging into the markets. Hugh Johnson, Chairman and
• 13:39
  Speaker 1: Chief investment officer, Hugh Johnson Advisers, based in Alby, New York,
• 13:43
  Speaker 1: giving us his thoughts as to the market again expecting
• 13:46
  Speaker 1: at least a really really dismal second quarter in terms
• 13:49
  Speaker 1: of earnings, in terms of GDP growth. And then the
• 13:52
  Speaker 1: question is in everybody's mind right now, is to what
• 13:55
  Speaker 1: extent does the economy and does corporate American global economy
• 14:00
  Speaker 1: come back? Is it kind of in the third fourth
• 14:01
  Speaker 1: quarter or is it something that's pushed out into That's
• 14:05
  Speaker 1: when investors are trying to get a sense of Right now,
• 14:10
  Speaker 1: there's a big question about the Federal Reserves new bond
• 14:13
  Speaker 1: purchasing program, in particular their focus on junk debt, a
• 14:17
  Speaker 1: real big question. For the first time ever, they're delving
• 14:20
  Speaker 1: into blow investment grade credit. Just how low will they go?
• 14:24
  Speaker 1: Is it's just a temporary effort meant to stave off
• 14:27
  Speaker 1: some of the fallen angels Joining us now as R J. Gallo,
• 14:30
  Speaker 1: senior portfolio manager a fixed income at Federated Hermes joining
• 14:35
  Speaker 1: us are j. I'm wondering from your perspective, we saw
• 14:38
  Speaker 1: the biggest rally, the biggest one day rally in junk
• 14:41
  Speaker 1: debt on Front Thursday since the late ninety nineties. Do
• 14:44
  Speaker 1: you think it's overdone? I think it's overdone. That's a
• 14:48
  Speaker 1: great question. UM. I think right now the markets are
• 14:53
  Speaker 1: all markets. It was a great week for for equities
• 14:56
  Speaker 1: to write um. Risk assets are responding to the fact
• 15:01
  Speaker 1: that the second derivative, the rate of change, the rate
• 15:03
  Speaker 1: of change in new cases, continues to head in a
• 15:06
  Speaker 1: in a friendly direction, and so uh riff taking is
• 15:11
  Speaker 1: coming back. The FED significantly accelerated that by opening up
• 15:15
  Speaker 1: their buying programs to include how your corporate debt, which
• 15:18
  Speaker 1: is a stark change from Federal Reserve history by any metric.
• 15:23
  Speaker 1: Um The sharp move was dramatic. Our our traders were
• 15:29
  Speaker 1: recounting dramatic market conditions sharply higher. You can see an
• 15:32
  Speaker 1: e t F, you can see it in bonds. I
• 15:35
  Speaker 1: think the goal of the FED has been all along
• 15:38
  Speaker 1: to make market functioning less of an issue, and by
• 15:41
  Speaker 1: every metric, whether you're looking at weekly rates and munis,
• 15:45
  Speaker 1: whether you're looking at commercial paper rates, whether you're looking
• 15:47
  Speaker 1: at bill rates, they've all moved in a direction to
• 15:50
  Speaker 1: say markets are functioning better. Treasuries, unis, corporates, etcetera. Now
• 15:55
  Speaker 1: the focus looking forward will be the broader fundamentalifications on
• 16:00
  Speaker 1: credit defaults, downgrades, etcetera. So a little over down, a
• 16:05
  Speaker 1: little emotional, maybe, but I think we're facing with a
• 16:08
  Speaker 1: face with a lot of uncertain team. We're moving beyond
• 16:10
  Speaker 1: the point where markets were dysfunctional, now to the point
• 16:13
  Speaker 1: of assessing fundamentals as we go through likely U shaped
• 16:16
  Speaker 1: economic recovery. You're saying, you know that there is a
• 16:20
  Speaker 1: support here, there's a question about fundamentals, what are you
• 16:23
  Speaker 1: expecting r J when it comes to default and how
• 16:27
  Speaker 1: much of that has been priced in? Well, first of
• 16:30
  Speaker 1: on the fundamentals, I think there's a high level of uncertainty,
• 16:33
  Speaker 1: and you can see it in Bloomberg's own data. You
• 16:36
  Speaker 1: do the e CFC for those in front of a
• 16:38
  Speaker 1: terminal UM the economic forecasts, and the median forecast for
• 16:43
  Speaker 1: Q two GDP is a loss negative twenty two point.
• 16:47
  Speaker 1: The range is as high as a lot of decline
• 16:51
  Speaker 1: of six, with some still suggesting a high of a
• 16:55
  Speaker 1: little bit of growth. So a huge level uncertainty exists
• 16:59
  Speaker 1: and and it Yeah, I almost hate the phrase markets
• 17:01
  Speaker 1: don't like uncertainty. I think it's a silly phrase. Markets
• 17:05
  Speaker 1: don't like high levels of uncertainty and shifts in the
• 17:08
  Speaker 1: level of uncertainty in short periods of time. There's always
• 17:10
  Speaker 1: uncertainty about the future. It's when it's extreme intense and
• 17:14
  Speaker 1: wide and right now it's extreme intense and why so
• 17:17
  Speaker 1: it spread? Are are why there was a sharp sell off,
• 17:20
  Speaker 1: especially in March, as markets were dysfunctional and the recession
• 17:23
  Speaker 1: was setting in UM. We believe that there will be
• 17:26
  Speaker 1: elevated default rates. We haven't put a number on it
• 17:30
  Speaker 1: because I think there's sharp discrepancies across sectors. Uh. In
• 17:34
  Speaker 1: addition to the recession, we had the oil price war
• 17:36
  Speaker 1: that now seems to be calming down somewhat. UM. I
• 17:39
  Speaker 1: think safe to say as a firm, we went into
• 17:42
  Speaker 1: this crisis underweight high yield, not because we thought COVID
• 17:45
  Speaker 1: nineteam was going to get as bad as it has,
• 17:47
  Speaker 1: but because valuation had gotten extraordinarily tight not and it
• 17:51
  Speaker 1: wasn't compensating you for the uncertainties of the future. Those
• 17:53
  Speaker 1: uncertainties became profound and very difficult. As we now know,
• 17:57
  Speaker 1: we've been actually starting to add to our way how
• 18:00
  Speaker 1: yield our multi sector portfolios. Although we still remain slightly underweight.
• 18:04
  Speaker 1: Why because of the uncertainties I just described. The fundamentals
• 18:08
  Speaker 1: are still unclear, The sector ramifications are going to be
• 18:11
  Speaker 1: vast and divergent. Oil in particular is a tough one UM,
• 18:14
  Speaker 1: and so we still think some caution is warranted. But
• 18:17
  Speaker 1: over time, as some of that uncertainty stades, as evidenced
• 18:20
  Speaker 1: by falling vix and and and just the passage of times,
• 18:23
  Speaker 1: we see real data as opposed to fear of set data,
• 18:27
  Speaker 1: then I wouldn't be shocked if we continue to incrementally
• 18:29
  Speaker 1: move and get more constructive on how yell based upon
• 18:32
  Speaker 1: valuation and as we see things unfold. R J, what
• 18:36
  Speaker 1: is what is your expectation for credit quality across your portfolio?
• 18:40
  Speaker 1: I mean it's we're just in obviously the very very
• 18:42
  Speaker 1: early stages here, but you know, if some of those
• 18:44
  Speaker 1: GDP numbers come to fruition really going to be a
• 18:48
  Speaker 1: pressure on a lot of balances. How are you thinking
• 18:50
  Speaker 1: about that? Well, the interesting thing is that everybody in
• 18:55
  Speaker 1: the market, whether they're in your role covering the market
• 18:58
  Speaker 1: from an analytical or journalistic standpoint or from our role
• 19:01
  Speaker 1: as being investment managers, we've never quite seen something as
• 19:05
  Speaker 1: profound as this. We've had a global financial crisis. I
• 19:08
  Speaker 1: was around for that, We were around for the other
• 19:12
  Speaker 1: recessions up in the in the business one way or
• 19:14
  Speaker 1: another since nine. But nobody in the business has seen
• 19:20
  Speaker 1: decline in g d P. Uh. You know, I think
• 19:22
  Speaker 1: GDP contracted that its seasonally adjusted annirate of eight three percent.
• 19:26
  Speaker 1: I think it was uh during the two thou procession,
• 19:29
  Speaker 1: so this could be like three times deeper um. But
• 19:33
  Speaker 1: what's different about then and now is that this was
• 19:36
  Speaker 1: in response to an exogenous shock, not an indogenous financial crisis,
• 19:40
  Speaker 1: which too much leverage in the housing bubble was an
• 19:43
  Speaker 1: endogenous financial crisis back then. So if we can ramp
• 19:47
  Speaker 1: back up with the huge amount of policy support, the
• 19:50
  Speaker 1: two point three trillion in the Carra's Act, the FEDS
• 19:53
  Speaker 1: myriad of programs from high yield to immunis to treasury,
• 19:57
  Speaker 1: the mortgages, UM, if these cushions are are strong enough
• 20:02
  Speaker 1: to give us enough of a bounce UM, then you
• 20:05
  Speaker 1: have to believe that that the bottom will be this quarter,
• 20:09
  Speaker 1: the quarter we're currently in UM two three is debatable
• 20:13
  Speaker 1: whether we have a little bit more of a contraction
• 20:15
  Speaker 1: in the in the economy or not. The debatable prospect.
• 20:19
  Speaker 1: But over times you start to reintroduce, and if the
• 20:21
  Speaker 1: virus behaves reasonably well as we do reintroduce economic activity
• 20:26
  Speaker 1: of all kinds of sorts that right now is largely
• 20:28
  Speaker 1: been tabled in many areas, UM, then you have to
• 20:31
  Speaker 1: believe that that this is like a big bridge loan
• 20:33
  Speaker 1: to the economy, The Cares Act, the Fed, it's all
• 20:36
  Speaker 1: a big bridgelander the economy to try to get us
• 20:38
  Speaker 1: to a better day. Will it work? Will it not work.
• 20:41
  Speaker 1: Not totally clear. There's clearly optimism in the markets over
• 20:44
  Speaker 1: the last week that it will work. UM. Back to
• 20:47
  Speaker 1: the original question, that might have been a little bit overdone.
• 20:50
  Speaker 1: We we have yet to see the earnings destruction. We
• 20:52
  Speaker 1: have yet to see the fundamental data downgrades are coming.
• 20:56
  Speaker 1: Um defaults will be rising. I think it's very difficult
• 21:00
  Speaker 1: to sitting here and start pinpointing which names and which
• 21:03
  Speaker 1: which individual sectoris and which you anticipate them. But it's
• 21:06
  Speaker 1: obvious that some sectors are more challenge than others. And
• 21:08
  Speaker 1: this is what you have an analyst staff for. This
• 21:10
  Speaker 1: is the time for active management. This is, you know,
• 21:13
  Speaker 1: Federated an active manager. We're not a passive manager. We
• 21:15
  Speaker 1: don't run bond index funds. Sorry, Ari Gally, once again,
• 21:18
  Speaker 1: working to just cut in right now. We thank you
• 21:20
  Speaker 1: so much for your commentary. Right now, we're gonna go
• 21:21
  Speaker 1: to New York State Governor Andrew Cuomo. And that was R. J.
• 21:24
  Speaker 1: Gallas and your portfolio manager. Federate Attorney's time for Bloomberg Opinion.
• 21:31
  Speaker 1: We're joined by Bloomberg Opinion columns Liam Denning. He covers
• 21:34
  Speaker 1: all things on the energy front and land. We had
• 21:37
  Speaker 1: over the weekend UM. This agreement by OPEC plus about
• 21:43
  Speaker 1: ten million dollars ten million barrels per day cut in production.
• 21:46
  Speaker 1: President Trump just tweeting just this morning that maybe as
• 21:49
  Speaker 1: much as twenty million barrels a day. What do we
• 21:52
  Speaker 1: know about disagreement and does it what does it really
• 21:54
  Speaker 1: mean for the global oil markets? I mean, I've I've
• 21:57
  Speaker 1: always characterized this agreement as really OPEC plus and certain
• 22:02
  Speaker 1: other players, including President Trump, you know, really trying to
• 22:06
  Speaker 1: get ahead of UM what is actually just an inevitable issue,
• 22:11
  Speaker 1: which is that they're going to have to cut supply.
• 22:15
  Speaker 1: If if demand is down by you know, roughly a
• 22:18
  Speaker 1: third by some estimates, then that means, you know, refiners
• 22:23
  Speaker 1: stop buying crude oil because customers aren't buying it. And
• 22:26
  Speaker 1: that means if you're a producer and refiners aren't taking it,
• 22:31
  Speaker 1: you have to find a place of store it, and
• 22:33
  Speaker 1: you know, we could be running out of storage current
• 22:36
  Speaker 1: rates UM, you know, sometime within a month or two,
• 22:39
  Speaker 1: and that's when prices would you crash into single digits.
• 22:43
  Speaker 1: So this disagreement to cut is I see as as
• 22:47
  Speaker 1: kind of a veneer of control on a on a
• 22:50
  Speaker 1: pretty uncontrollable situation a veneer of control. I'm trying to
• 22:55
  Speaker 1: understand the numbers, especially given the estimates that you highlight,
• 22:58
  Speaker 1: which is that we could run out of Oorrige within weeks.
• 23:02
  Speaker 1: And yet this agreement isn't going to go into effect
• 23:04
  Speaker 1: until May first, technically, although a lot of them may
• 23:07
  Speaker 1: barrels have already been sold in the in the futures market.
• 23:11
  Speaker 1: So how much are we actually going to cut? Can
• 23:14
  Speaker 1: we avoid breaching capacity as some of these storage facilities. Well,
• 23:19
  Speaker 1: I think that's certainly the aim, and I think it's
• 23:21
  Speaker 1: a bit too early to the sages. Yeah, And look,
• 23:24
  Speaker 1: I mean in the end, as I say, oh, Big
• 23:27
  Speaker 1: Plus has to cut supply, Um, there is no other
• 23:31
  Speaker 1: thing they can do. So I don't think it's necessarily
• 23:33
  Speaker 1: a bad thing that they um kind of put it
• 23:37
  Speaker 1: in the context of this agreement. But essentially what they're
• 23:40
  Speaker 1: trying to do, if I can borrow an analogy that's
• 23:43
  Speaker 1: you know, quite prominent at the moment, is they're trying
• 23:45
  Speaker 1: to flatten the curve essentially, rather than they can't coop
• 23:50
  Speaker 1: to that. Now, that's that's stuck for pandemic talk. Carry
• 23:53
  Speaker 1: on now, thank you, uh, you know, and instead of
• 23:57
  Speaker 1: running out lies to you beds are going to run
• 23:59
  Speaker 1: out of tanker space, and a commodity that runs out
• 24:02
  Speaker 1: of tanker space that you can't just dump, um, you know,
• 24:06
  Speaker 1: essentially you're gonna have to start paying people to take
• 24:08
  Speaker 1: it off your hands. I mean, just to put this
• 24:10
  Speaker 1: in context, my estimates on Friday had even under a
• 24:15
  Speaker 1: best case scenario with this cut, another five million barrels
• 24:19
  Speaker 1: going into storage within the space of you know, a
• 24:23
  Speaker 1: couple of months. If we go back to the crash,
• 24:29
  Speaker 1: that amount of oil went into inventory, but that happened
• 24:32
  Speaker 1: over the course of about two years, and that was
• 24:35
  Speaker 1: enough to do serious damage to the all market. Now
• 24:37
  Speaker 1: we're talking about that happening in the space of weeks.
• 24:40
  Speaker 1: So Liam, where is America in terms of oil production here?
• 24:45
  Speaker 1: I remember about thirteen million barrels a day. Is the
• 24:49
  Speaker 1: American shop producers canna be reducing their output? Oh? Absolutely,
• 24:53
  Speaker 1: I mean that is happening already, and you can see
• 24:56
  Speaker 1: it in what's happening with the numbers in terms of
• 25:00
  Speaker 1: acting cruise that are being deployed. I mean, that's coming
• 25:03
  Speaker 1: down at an enormous rate already. And if you think
• 25:07
  Speaker 1: about it, those are the guys and the you know,
• 25:09
  Speaker 1: the equipment that actually completes the wells that get drilled,
• 25:13
  Speaker 1: and if they're coming off, as companies try to consider
• 25:17
  Speaker 1: of cash shales, natural decline rate means that it will
• 25:22
  Speaker 1: start to come off quite quickly. I would say, if
• 25:27
  Speaker 1: it hasn't started to come off by the end of
• 25:28
  Speaker 1: this quarter, almost certainly in the third quarter we will
• 25:32
  Speaker 1: start to see it and it will begin to accelerate. So,
• 25:36
  Speaker 1: you know, going into that meeting on Friday, obviously the
• 25:39
  Speaker 1: US was talking about, you know, contributing cuts, but these
• 25:45
  Speaker 1: are cuts that were going to come anyway. It's not
• 25:48
  Speaker 1: being done as an act of will. It's just a
• 25:51
  Speaker 1: natural result of prices crashing. Yeah, which which raises the
• 25:56
  Speaker 1: question of the Texas Railroad Commission, which evidently holds a
• 25:59
  Speaker 1: lot of our Suddenly are people are looking to their
• 26:02
  Speaker 1: meeting tomorrow. Will it be the first time since the
• 26:05
  Speaker 1: nineteen seventies that they curb aggressively Texas output of shale?
• 26:10
  Speaker 1: What do you expect? I'm skeptical that we're going to
• 26:13
  Speaker 1: see a lot out of that, partly because the most
• 26:17
  Speaker 1: vocal proponent of it, of the Commission doing something, Ryan Sitton,
• 26:21
  Speaker 1: is actually a Lane Duck commissioner. Um and we've seen
• 26:25
  Speaker 1: disagreement playing out on Twitter, of course, between the commissioners
• 26:30
  Speaker 1: as to what would happen. You also really need to
• 26:33
  Speaker 1: get in a sort of miniature version of OPEC. You
• 26:36
  Speaker 1: need to get several state regulators to agree to to
• 26:42
  Speaker 1: to curb output, because otherwise you'll have that similar dynamic
• 26:46
  Speaker 1: where Texas may feel it curbs and other states jump
• 26:49
  Speaker 1: in to take market share. And I think that's one
• 26:52
  Speaker 1: thing that people are missing about this whole thing in general.
• 26:55
  Speaker 1: The battle for market share hasn't gone away. You know.
• 26:59
  Speaker 1: We saw that most most prominently with the fact that
• 27:03
  Speaker 1: there was this long argument with Mexico over what was
• 27:06
  Speaker 1: in the end of rounding Era on the cut and
• 27:08
  Speaker 1: the fact that we saw Saudio Radio cut its official
• 27:11
  Speaker 1: selling prices the Asia last night. It just shows you
• 27:15
  Speaker 1: that even if it's temporarily trying to support prices, the
• 27:20
  Speaker 1: essential battle for market share in this or market isn't
• 27:23
  Speaker 1: going away. Liam Denning, thank you so much for being
• 27:26
  Speaker 1: with us. Liam Denning is an energy calmness with Bloomberg Opinion.
• 27:30
  Speaker 1: Thanks for listening to the Bloomberg Penl podcast. You can
• 27:33
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever.
• 27:36
  Speaker 1: Podcast platform you prefer Paul Sweeney. I'm on Twitter at
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  Speaker 1: pt Sweeney and Lisa Bramoy. It's I'm on Twitter at
• 27:42
  Speaker 1: Lisa Bramo. It's one before the podcast. You can always
• 27:45
  Speaker 1: catch us worldwide. I'm Bloomberg Radio