Latest / Bloomberg Intelligence / $75 Oil Price Target Looks Rich, More Supply Coming: Kilduff

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$75 Oil Price Target Looks Rich, More Supply Coming: Kilduff · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud and Bloomberg dot Com. I
• 0:27
  Speaker 1: want to introduce John Killdoff. He is the founding partner
• 0:30
  Speaker 1: of Again Capital. Joins us to talk about energy markets.
• 0:34
  Speaker 1: John always a pleasure. Happy holidays. Does OPEQ really control
• 0:37
  Speaker 1: the price of oil? Happy holidays to you, pim Um.
• 0:42
  Speaker 1: They they certainly, you know, come together with Russia to
• 0:46
  Speaker 1: try to to write the ship of state here this
• 0:49
  Speaker 1: past year. I think what people shouldn't lose sight of
• 0:52
  Speaker 1: the fact of though, is that they got helped out
• 0:55
  Speaker 1: by several exogenous events this year. UM big pipeline adage
• 0:59
  Speaker 1: out of Camp, the key Stone pipeline was down for
• 1:01
  Speaker 1: a while, the hurricanes this summer UH did a lot
• 1:05
  Speaker 1: of damage to global production. And for the past several
• 1:08
  Speaker 1: weeks now we've had a major oil pipeline outage in
• 1:11
  Speaker 1: the North Sea that has kept about four thousand barrels
• 1:14
  Speaker 1: a day off the market and we'll come back until
• 1:17
  Speaker 1: mid next week at the earliest. It looks like so
• 1:20
  Speaker 1: they've had a lot of help. But they certainly achieved
• 1:24
  Speaker 1: a big objective here in terms of getting global supplies
• 1:26
  Speaker 1: to Titan. So did they control it. No, but they
• 1:30
  Speaker 1: are certainly not irrelevant either, I would say, Okay, So,
• 1:33
  Speaker 1: having said that, do you buy the idea that seventy
• 1:36
  Speaker 1: a barrel bye looks plausible? It seems like a little
• 1:41
  Speaker 1: bit of a rich valuation to me, uh, particularly when
• 1:45
  Speaker 1: you see the growth plans for production that's out there, uh,
• 1:50
  Speaker 1: for Russia, for Iraq, for Iran, even and even overlooked
• 1:55
  Speaker 1: because they've had so many problems over the past several years.
• 1:59
  Speaker 1: Is Brazil and Petrobras finally getting their act back together
• 2:03
  Speaker 1: with their offshore production. Wanted to have nothing to do
• 2:05
  Speaker 1: with this OPEC non OPA agreement that's persisted for the
• 2:08
  Speaker 1: past year. And of course the US shell guys seems
• 2:11
  Speaker 1: to still be in the early innings of what they
• 2:13
  Speaker 1: can do. So there's still gonna be a lot of supply,
• 2:16
  Speaker 1: you know, being put onto this market. And will that
• 2:18
  Speaker 1: supply come in the form of crude or natural gas
• 2:21
  Speaker 1: are both. It's certainly going to be both. And interestingly,
• 2:25
  Speaker 1: the low super low costs that US consumers are enjoying
• 2:28
  Speaker 1: for natural gas is one thing that may may come
• 2:31
  Speaker 1: to an end at least to a degree as we
• 2:33
  Speaker 1: as we start to export more and more liquefied natural gas.
• 2:36
  Speaker 1: But there is going to be certainly a lot of
• 2:39
  Speaker 1: crude oil. The other interesting thing him is that and
• 2:43
  Speaker 1: the oil industry seems to do this. They all seem
• 2:45
  Speaker 1: to get the same business plan idea from time to time.
• 2:48
  Speaker 1: Everybody has the same power point. Uh, And right now
• 2:50
  Speaker 1: everybody is getting into the refined products business and ramping
• 2:54
  Speaker 1: up that production. And that's one thing that's sort of
• 2:57
  Speaker 1: quietly weighed on the markets increasingly as well. You have
• 3:00
  Speaker 1: you have China who's a huge net exporter of diesel
• 3:04
  Speaker 1: fuel and gasoline. US refiners have just been killing it
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  Speaker 1: this year in terms of upping their levels of exports,
• 3:11
  Speaker 1: and the Saudis haven't you know not let this go
• 3:15
  Speaker 1: one noticed they have also ramped up they're refined production capacity.
• 3:20
  Speaker 1: So again, this is a market that has been you know,
• 3:23
  Speaker 1: reacting now for a couple of years to the super
• 3:25
  Speaker 1: high price environment we had when oil was over a
• 3:27
  Speaker 1: hundred bucks of barrel um and so we're still seeing
• 3:30
  Speaker 1: the fruits of that being born out here in terms
• 3:32
  Speaker 1: of more supply of everything. So are refined product producers
• 3:36
  Speaker 1: are they still considered to be good investments or are
• 3:40
  Speaker 1: they too expensive? They're a little rich. But the US
• 3:45
  Speaker 1: producers in particular, the US refiners, the pure players, but
• 3:48
  Speaker 1: even x On Mobile and and and Conaco are really
• 3:53
  Speaker 1: in the in the catbird seats still because the Saudias
• 3:56
  Speaker 1: and some of these others that I've mentioned are still
• 3:59
  Speaker 1: in the process of to catch up to them. So
• 4:01
  Speaker 1: they have a domestic crude oil that's much cheaper. The
• 4:04
  Speaker 1: b t I has been upwards to five or six
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  Speaker 1: dollars cheaper than Brent and other international markers, so they
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  Speaker 1: have that huge input advantage. Uh So they are still
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  Speaker 1: I think a place where sort of the bright spot
• 4:17
  Speaker 1: of the energy sector. Now you mentioned natural gas, and
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  Speaker 1: we currently enjoy natural gas at around two dollars and
• 4:24
  Speaker 1: sixty seven cents per million BTU. How long before you
• 4:30
  Speaker 1: believe that price will increase enough to make people stand
• 4:34
  Speaker 1: up and take notice. I think when you start to
• 4:37
  Speaker 1: crunch the numbers actually for the end of even you're
• 4:40
  Speaker 1: going to see that the export volumes of liquefied natural
• 4:44
  Speaker 1: gas via liquified natural gas obviously via ship, but also
• 4:48
  Speaker 1: we've been exporting increasing the amounts of natural gas to
• 4:51
  Speaker 1: Mexico via traditional pipeline. That's going to register with the
• 4:54
  Speaker 1: inventories this year at this winter, for the first time
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  Speaker 1: in several years, we do not have a record amount
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  Speaker 1: of gas us in storage as we start the winter,
• 5:03
  Speaker 1: and we're and we're below last year's amounced by double digits.
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  Speaker 1: So you're already seeing, uh, some of that cushion get
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  Speaker 1: eaten away by the l en G export, the trains
• 5:12
  Speaker 1: that are already online, and you're going to see more
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  Speaker 1: of that. So this this real surf feed of gas
• 5:17
  Speaker 1: that we've enjoyed for the past several years, UH, is
• 5:20
  Speaker 1: likely to be going away, I believe, just to to
• 5:23
  Speaker 1: kick off next winter. Okay. So if that's the case,
• 5:25
  Speaker 1: then does that your mind mean that we're going to
• 5:28
  Speaker 1: see higher electric generating prices. Yes, because they're going to
• 5:35
  Speaker 1: have a higher input cost. UH. And I don't believe
• 5:38
  Speaker 1: even with the higher natural gas prices that will be
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  Speaker 1: enough to bring sort of call back into the picture.
• 5:44
  Speaker 1: By the way it once was um and also to Pam,
• 5:47
  Speaker 1: I think with the sort of shifting away a bit
• 5:50
  Speaker 1: by the administration from promoting alternatives like solar and wind,
• 5:57
  Speaker 1: although there's a there's a lot of wind now in
• 5:59
  Speaker 1: place already, uh, that that too is going to push
• 6:02
  Speaker 1: the needle more towards it, or consumption more towards natural gas,
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  Speaker 1: which you're gonna get those prices up, So that's your
• 6:07
  Speaker 1: feet stopped going up. That's obviously going to cause electrical
• 6:11
  Speaker 1: uh prices to go up as well. So just as
• 6:14
  Speaker 1: we've gotten hooked on natural gas, just in time for
• 6:18
  Speaker 1: a price increase a year from now at least, that's
• 6:20
  Speaker 1: that's what you're betting on. All right, Thanks very much,
• 6:23
  Speaker 1: very much. Again, it's just become a beloved fuel, and
• 6:26
  Speaker 1: now this race to export it is really making a
• 6:30
  Speaker 1: difference here. It's going to be an interesting phenomenon to
• 6:32
  Speaker 1: see how much I wonder if we're going to regret
• 6:35
  Speaker 1: promoting the export of this particular commodity here down the road.
• 6:39
  Speaker 1: You're gonna help us understand the topic in the future.
• 6:42
  Speaker 1: As always John Kilduff, he is founding partner of Again Capital.
• 6:51
  Speaker 1: Our focus on fixed income is brought you by PIMCO
• 6:54
  Speaker 1: for investors who demand more than the markets deliver. All
• 6:57
  Speaker 1: investments contain risk and may lose value. Consult your investment
• 7:00
  Speaker 1: professional before investing. Well, to consult a professional about what
• 7:05
  Speaker 1: the future holds, we have Brad McMillan. He is the
• 7:07
  Speaker 1: Chief Investment Officer for Commonwealth Financial Network. They have more
• 7:11
  Speaker 1: than a hundred and ten billion dollars under management, based
• 7:15
  Speaker 1: in Waltham, mass And of course you can follow Brad
• 7:19
  Speaker 1: McMillan on Twitter at Brad McMillan c f A. All right,
• 7:24
  Speaker 1: Brad McMillan c f A, the Year of the rollover,
• 7:27
  Speaker 1: that's what you're describing eighteen as. What does that mean,
• 7:31
  Speaker 1: the year of the rollover? Well, pim I think we're
• 7:35
  Speaker 1: ending the year on an unmistakable high note. You know,
• 7:39
  Speaker 1: markets are close to record as we've seen growth being
• 7:42
  Speaker 1: revised upwards, we've seen corporate earnings grow and all of
• 7:45
  Speaker 1: that's terrific, and we're carrying a lot of momentum in
• 7:48
  Speaker 1: the next year. The problem is everything is just about
• 7:51
  Speaker 1: as good as it gets, so at some point during
• 7:54
  Speaker 1: the year, probably in the second half, we're gonna start
• 7:56
  Speaker 1: to see a lot of things roll over, and by
• 7:59
  Speaker 1: the end of the year. Why what what nearly is good?
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  Speaker 1: So what would be an example of something that would
• 8:04
  Speaker 1: roll over. Well, let's look at job growth. For example,
• 8:07
  Speaker 1: we've seen tremendous job growth. We've seen the unemployment rate
• 8:11
  Speaker 1: down to levels we haven't seen since the dot com boom.
• 8:14
  Speaker 1: In fact, we're actually running out of people to employ.
• 8:18
  Speaker 1: So when you look at that, you say to yourself,
• 8:20
  Speaker 1: my god, we've we've done very, very well. But what
• 8:23
  Speaker 1: happens is we're actually starting to see hiring ticked down.
• 8:26
  Speaker 1: It's slow, but it's happening. And when we get hiring
• 8:29
  Speaker 1: growth to a slow enough pace, that typically leads to
• 8:32
  Speaker 1: a change of confidence. It's not that we're not doing well,
• 8:35
  Speaker 1: it's we're running out of room to do better. Well,
• 8:38
  Speaker 1: would that change of confidence be changed once again? If
• 8:42
  Speaker 1: while they don't necessarily hire, the same number of people
• 8:45
  Speaker 1: are continuing hiring, what about they just increased wages. That
• 8:49
  Speaker 1: would be great. And in fact, when you see consumer
• 8:52
  Speaker 1: confidence again right now, where at levels we last saw
• 8:54
  Speaker 1: in the dot com boom. But we still have some
• 8:57
  Speaker 1: room to go. Okay, So but you look at consumer
• 9:01
  Speaker 1: confidence and you say, okay, we're gonna top out. When
• 9:03
  Speaker 1: people were just as confident as they were just before
• 9:06
  Speaker 1: the dot com boom burst. That means we got about
• 9:09
  Speaker 1: a year ago. So again we've got some running room.
• 9:12
  Speaker 1: But unless you think things are gonna get much much
• 9:14
  Speaker 1: better than even they were in the dot com boom,
• 9:17
  Speaker 1: we're running out of room. Okay. So if we're running
• 9:20
  Speaker 1: out of room and you say maybe a year to go,
• 9:22
  Speaker 1: and let's say it takes you as an institutional investor,
• 9:25
  Speaker 1: or even as an individual investor, it takes you maybe
• 9:29
  Speaker 1: six months to really change your portfolio, do you recommend
• 9:33
  Speaker 1: that people start taking profits. I don't think so. I
• 9:38
  Speaker 1: think what we're gonna see is we're going to see
• 9:39
  Speaker 1: the market continue to rise for the first half. You know,
• 9:42
  Speaker 1: we still have a lot of good things going on,
• 9:45
  Speaker 1: and confidence really has room to run. But then we're
• 9:48
  Speaker 1: gonna have to start thinking in the back half. You
• 9:50
  Speaker 1: might want to say, okay, maybe we want to get
• 9:52
  Speaker 1: a little bit more defensive. So yeah, but not right now.
• 9:56
  Speaker 1: What does defensive look like? To Brad McMillan, I think
• 10:00
  Speaker 1: cash is underrated as an asset class. I think it
• 10:03
  Speaker 1: gives you optionality, it gives you a sleep at night factor.
• 10:07
  Speaker 1: I think moving back towards areas where you're not going
• 10:10
  Speaker 1: to need growth. I think value stocks are gonna they're
• 10:12
  Speaker 1: starting to come back. They've really underperformed relative to growth,
• 10:16
  Speaker 1: but I think their day is coming again. I think
• 10:17
  Speaker 1: those two components help a lot. Earlier in the program,
• 10:21
  Speaker 1: we're speaking with shrine of Us Twodoor van Dantae of
• 10:26
  Speaker 1: the Jerome lev Forecasting Center, and he outlined this had
• 10:30
  Speaker 1: to do really with bitcoin, but I want to apply
• 10:32
  Speaker 1: it here, which is that because we're in a yield
• 10:35
  Speaker 1: starved environment, people have been chasing capital gains in order
• 10:39
  Speaker 1: to make up for that. Do you agree. I think
• 10:42
  Speaker 1: there's a lot of truth to that. I think the
• 10:44
  Speaker 1: fear of missing out there is no alternative to the
• 10:47
  Speaker 1: stock market. That's true. If interest rates start to rise again, though,
• 10:51
  Speaker 1: that becomes no longer true, and when that trade reverses,
• 10:54
  Speaker 1: that could be ugly. You mean there's an actual possibility
• 10:57
  Speaker 1: that people will buy CDs for income once again, Well,
• 11:01
  Speaker 1: when you look at what you're getting paid for the
• 11:05
  Speaker 1: risk you're taking in the market, Yeah, c d s
• 11:07
  Speaker 1: at two if and when we get there, are gonna
• 11:11
  Speaker 1: look like a fairly compelling alternative. What effect do you
• 11:14
  Speaker 1: believe that the tax overhaul plan will have on your thesis,
• 11:18
  Speaker 1: not much. What we're gonna do is we're gonna have
• 11:21
  Speaker 1: a one shot deal. We are going to see a
• 11:24
  Speaker 1: tremendous amount of cash brought back, and now, of course
• 11:26
  Speaker 1: we'll cheer the markets up. We're going to see the
• 11:29
  Speaker 1: market repriced to reflect weller tax rates, but it doesn't
• 11:33
  Speaker 1: meaningfully affect overall growth rates. So once we get that
• 11:37
  Speaker 1: one adjustment, we're going to be back to where we were.
• 11:40
  Speaker 1: Well the federal reserves shrug off that one time adjustment,
• 11:44
  Speaker 1: or will they continue to raise interest rates. I think
• 11:48
  Speaker 1: they're gonna keep raising interest rates, and this will probably
• 11:51
  Speaker 1: be a part of it, but the bigger part of
• 11:53
  Speaker 1: it will be the piece that you mentioned earlier, once
• 11:55
  Speaker 1: we start to see wage growth increase again. From the
• 11:58
  Speaker 1: Fed's point of view, inflation has been too well and
• 12:00
  Speaker 1: they've been trying to drive it up. Well, be careful
• 12:03
  Speaker 1: what you wish for. I think eighteen is the year
• 12:06
  Speaker 1: we start to see inflation cook. And between that and
• 12:08
  Speaker 1: the fact that the incoming FED that the voting board
• 12:12
  Speaker 1: is actually going to be considerably more hawkish, I think
• 12:15
  Speaker 1: you got a price. You've got a recipe for more
• 12:17
  Speaker 1: rate increases. Does that mean a stronger US dollar? It
• 12:21
  Speaker 1: certainly could. It certainly could. I think the US dour
• 12:24
  Speaker 1: is probably at relatively high levels, but it still has
• 12:27
  Speaker 1: more room to appreciate given the pullback over the past
• 12:30
  Speaker 1: several months. And that means what that oil prices or
• 12:33
  Speaker 1: commodity prices in general will remain muted, at least for
• 12:36
  Speaker 1: those that actually have to pay for them by earning dollars. Well.
• 12:40
  Speaker 1: I think from from a market perspective, oil is an
• 12:43
  Speaker 1: interesting case because what you're actually seeing is you're seeing
• 12:46
  Speaker 1: the re oligopalization of the market. In other words, there's
• 12:50
  Speaker 1: no longer the market is no longer a market as such,
• 12:53
  Speaker 1: prices are increasingly being set by large actors, by opec,
• 12:58
  Speaker 1: by large companies are operating in the US. It's no
• 13:02
  Speaker 1: longer every man for himself. This is much more of
• 13:04
  Speaker 1: a managed market. And to that extent, I think greennacy
• 13:07
  Speaker 1: prices keep tripping up, but the US dollar will help. Yes,
• 13:10
  Speaker 1: all right, so prices keep tripping up. With that mean
• 13:13
  Speaker 1: an investment in the energy sector or are you staying away?
• 13:16
  Speaker 1: I like the energy sector. I've liked it for a while,
• 13:19
  Speaker 1: although I was early on that one when you look
• 13:22
  Speaker 1: at where where energy companies are priced relative to oil prices,
• 13:27
  Speaker 1: unless you're expecting them to revert back to you know,
• 13:31
  Speaker 1: the very well levels we've seen, it makes no sense.
• 13:34
  Speaker 1: There's some running room there. I think that's a growth
• 13:36
  Speaker 1: sector going forward. All right, And what about you mentioned,
• 13:38
  Speaker 1: you know this idea that growth versus value. Are there
• 13:41
  Speaker 1: any industry groups in value or in growth that you
• 13:45
  Speaker 1: believe have missed out and deserve a second look? Well,
• 13:49
  Speaker 1: this is this is hardly a missdout trade. But when
• 13:51
  Speaker 1: you look at financials, a lot of the narrative out
• 13:54
  Speaker 1: there has been around the interest rate curve, and that's valid.
• 13:57
  Speaker 1: But I think the bigger story here, the one that
• 13:59
  Speaker 1: is being mist is the deregulatory Okay, financials as a
• 14:04
  Speaker 1: group have been really crippled by regulation ever since the crisis.
• 14:09
  Speaker 1: They simply have not been able to operate in the
• 14:12
  Speaker 1: way that they did pre crisis and buying large that's
• 14:14
  Speaker 1: been a good thing. But with deregulation, you're going to
• 14:17
  Speaker 1: see these companies unshackled and a lot of business opportunities
• 14:21
  Speaker 1: they've had to pass on will now be doable. I
• 14:23
  Speaker 1: think the deregulation is the big story for financials and
• 14:27
  Speaker 1: I think you'll hear about that more and more. What
• 14:29
  Speaker 1: we look forward to hearing about it from you as well.
• 14:31
  Speaker 1: Brad McMillan, Chief Investment Officer, Commonwealth Financial Network managing more
• 14:35
  Speaker 1: than a hundred and ten billion dollars from Waltham, mass
• 14:39
  Speaker 1: This is Bloomberg. I'm pim Fox and joining me now
• 14:47
  Speaker 1: a Shara over Day are Bloomberg gad Fly columnists covering
• 14:49
  Speaker 1: all things technology. Apple shares down two and a half percent,
• 14:54
  Speaker 1: and we've got a little bit of confusion in the market.
• 14:56
  Speaker 1: On the one hand, we have an analyst from Rose
• 14:58
  Speaker 1: and Blatt saying that the press reports of order cuts
• 15:02
  Speaker 1: of iPhone ten units by Apple could be confusing, maybe
• 15:06
  Speaker 1: referring to previously mentioned iPhone eight and eight plus production cuts. Oops,
• 15:13
  Speaker 1: maybe not the ten. Sure can you make sense out
• 15:16
  Speaker 1: of this force? I'll try the best I can. But look,
• 15:19
  Speaker 1: the fact is this happens every year around this time
• 15:23
  Speaker 1: for Apple, that there's going to be all kinds of reports,
• 15:26
  Speaker 1: mostly from Asia where Apple has all of its suppliers
• 15:30
  Speaker 1: and the companies that assemble the iPhones, and there there
• 15:33
  Speaker 1: tends to be these sort of conflicting push pull reports
• 15:35
  Speaker 1: about cuts in production or increases in production, or Apple's
• 15:40
  Speaker 1: making fewer of the new iPhones than they expected are more.
• 15:45
  Speaker 1: It's a lot of noise, and those kind of reports
• 15:48
  Speaker 1: out of the supply chain are wrong, let's say, fifty
• 15:51
  Speaker 1: percent of the time, So I wouldn't put too much
• 15:54
  Speaker 1: too much faith in any of them. But look, the
• 15:56
  Speaker 1: fact remains that the closest, most important question for the
• 16:02
  Speaker 1: most valuable public company in the world, which is Apple,
• 16:05
  Speaker 1: is what is demand like for the newest version of
• 16:09
  Speaker 1: the iPhone, the iPhone tent. And we still don't really
• 16:12
  Speaker 1: know the answer to that question. And it's not an
• 16:14
  Speaker 1: exaggeration to say that the market value of Apple, the
• 16:17
  Speaker 1: nine billion dollar plus market value of Apple, is highly
• 16:20
  Speaker 1: dependent on the answer to that question, clearly, but anecdotally,
• 16:24
  Speaker 1: I'm wondering whether you could share with us, you know,
• 16:26
  Speaker 1: anybody that bought the iPhone ten. Actually, in my in
• 16:30
  Speaker 1: my own household, my father just replaced his aging, I
• 16:34
  Speaker 1: think five year old iPhone that was literally held together
• 16:36
  Speaker 1: with a rubber band. He replaced it this week with
• 16:39
  Speaker 1: an iPhone tent. So there's one for Apple at least,
• 16:43
  Speaker 1: all right. The reason the reason I ask it is
• 16:44
  Speaker 1: because when someone sees the new the iPhone tent and
• 16:49
  Speaker 1: they see the old screen and they see some of
• 16:52
  Speaker 1: the features that are being offered and the speed, because
• 16:55
  Speaker 1: I think it's only being offered in a sixty four
• 16:57
  Speaker 1: and a two hundred and fifty six gig format, which
• 17:02
  Speaker 1: allows you to drive a mack truck through the middle,
• 17:04
  Speaker 1: but that that would create even greater demand because people
• 17:08
  Speaker 1: themselves go, oh, I like the way that looks. I've
• 17:10
  Speaker 1: got to get my hands on one of those. It's
• 17:12
  Speaker 1: entirely possible. And you're right, there is this kind of
• 17:15
  Speaker 1: viral effect when people see new phones. Um, and we'll
• 17:17
  Speaker 1: see what happens, you know, over the holiday, the important
• 17:20
  Speaker 1: holiday shopping season. Look at the big the big doubt
• 17:24
  Speaker 1: in my mind is if you look globally at trends
• 17:28
  Speaker 1: and smartphones, they're getting the improvements are becoming more marginal.
• 17:34
  Speaker 1: And part of it is our expectations that we got
• 17:38
  Speaker 1: used to for several years just seeing, uh, each new
• 17:42
  Speaker 1: smartphone generation that came out as so much better than
• 17:45
  Speaker 1: the last one. And it's still sort of true, but
• 17:48
  Speaker 1: I think our expectations have gotten so high that it
• 17:51
  Speaker 1: no longer feels like this dramatically cool moment when a
• 17:55
  Speaker 1: brand new iPhone comes out, and you can see it
• 17:57
  Speaker 1: in the numbers that in many countries in the world,
• 17:59
  Speaker 1: include in the United States, people are holding onto their
• 18:02
  Speaker 1: existing phones for longer and longer. Part of that, of course,
• 18:05
  Speaker 1: is price. I was going to say, because they're more
• 18:08
  Speaker 1: expensive and the carriers are not subsidizing the West. That
• 18:11
  Speaker 1: is definitely true. But part of it is also just
• 18:13
  Speaker 1: this kind of feeling of incrementalism and the phone that
• 18:16
  Speaker 1: I have today is good enough, particularly because a lot
• 18:19
  Speaker 1: of things we do on our phones are not that
• 18:22
  Speaker 1: dependent on having the latest and greatest model. Right If
• 18:25
  Speaker 1: I'm using Facebook or Instagram or email or things like that,
• 18:29
  Speaker 1: do I really need to do it on you know,
• 18:32
  Speaker 1: the latest process or the latest oh let screen? Is?
• 18:34
  Speaker 1: Is it? Because also that that the learning curve gets
• 18:37
  Speaker 1: deeper every time you get a new phone, because the
• 18:40
  Speaker 1: way you know there's not gonna be there's no home button,
• 18:42
  Speaker 1: for example, on the new Apple phone. There is no
• 18:45
  Speaker 1: way to plug in an audio jack into many of
• 18:49
  Speaker 1: the new smartphone. I'm sure on the margins that those
• 18:52
  Speaker 1: things matter, right, it gets kind of harder and harder
• 18:54
  Speaker 1: to transfer our lives from an old phone to the
• 18:56
  Speaker 1: new phone, and You're right, particularly with the iPhone tent,
• 18:59
  Speaker 1: there is kind of a learning curve because, as you said,
• 19:02
  Speaker 1: people there's no home button. People kind of have to
• 19:04
  Speaker 1: learn these new modes of navigating. Your hands are physically
• 19:09
  Speaker 1: going to have to learn how to swipe and move
• 19:13
  Speaker 1: in a different way. Yes, that is all true. And
• 19:16
  Speaker 1: also there's this kind of facial recognition technology to unlock
• 19:19
  Speaker 1: the phone, and and yeah, those might be barriers for
• 19:22
  Speaker 1: some people. But look, there's also a good amount of
• 19:25
  Speaker 1: enthusiasm for the iPhone time. But again, my question broadly
• 19:29
  Speaker 1: is is it enough to counter this sort of tendency
• 19:31
  Speaker 1: for people to feel like the existing phone they have
• 19:34
  Speaker 1: is good enough. Is it good enough to watch every
• 19:37
  Speaker 1: bit of television on a small screen now as opposed
• 19:41
  Speaker 1: to a big screen? I mean the people really watch
• 19:43
  Speaker 1: on a big maybe sports, but any kind of entertainment. Look,
• 19:48
  Speaker 1: I I think the transfer are clear that there was
• 19:51
  Speaker 1: a thinking for a long time that people won't do
• 19:54
  Speaker 1: X on their smartphones. Right, there was a feeling for
• 19:57
  Speaker 1: a long time people wouldn't really shop on their phones.
• 20:00
  Speaker 1: I think we've killed that notion that people are going
• 20:02
  Speaker 1: to shop on their phones. I think Amazon has put
• 20:04
  Speaker 1: that Amazon has definite as any app you buy or
• 20:07
  Speaker 1: anything you would buy. If you look at things like YouTube,
• 20:11
  Speaker 1: the majority of viewing on YouTube now is on smartphones.
• 20:15
  Speaker 1: So I think the tendency, particularly among young people who
• 20:19
  Speaker 1: are the future, let's face it, is to do more
• 20:22
  Speaker 1: and more on their phones, including watching television and movies
• 20:25
  Speaker 1: and other things that people a few years ago didn't
• 20:28
  Speaker 1: think that people would want to do on their smartphones.
• 20:31
  Speaker 1: I think the answer is people are going to want
• 20:33
  Speaker 1: to do everything on the small screen. I'm still trying
• 20:35
  Speaker 1: to figure out what to do with Pinterest on the
• 20:37
  Speaker 1: small screen because that seems to absorb a lot of
• 20:39
  Speaker 1: attention as well. Yeah, your Pinterest household. Yes, I still
• 20:44
  Speaker 1: don't know how it works. Maybe you'll show me. Thank
• 20:47
  Speaker 1: you very much. Siravi Day is our Bloomberg Gadfly columnists
• 20:50
  Speaker 1: covering technology. Is it really the best holiday season since
• 20:58
  Speaker 1: before the recession? Well left to ask an expert. We've
• 21:01
  Speaker 1: got Craig Johnson. He is the president of Customer Growth Partners.
• 21:04
  Speaker 1: He joins us from New Canaan, Connecticut. Craig, thank you
• 21:08
  Speaker 1: very much for being with us today. So I used
• 21:11
  Speaker 1: this quote to bring us into this topic. Is that
• 21:14
  Speaker 1: a business owner said to you that this is literally
• 21:16
  Speaker 1: the best season since before the recession? Is it? Well, Pam,
• 21:21
  Speaker 1: good to be with you have the Boxing day, and
• 21:24
  Speaker 1: yes it is. But by our metrics, UM, all the
• 21:27
  Speaker 1: numbers appointing that way. So sales through Christmas Eve, um
• 21:32
  Speaker 1: uh we're up about five point seven over last year
• 21:37
  Speaker 1: for the same period UM, and that that came to
• 21:40
  Speaker 1: a total five hundred eight billion dollars. And then this
• 21:43
  Speaker 1: Christmas week Christmas to New Year's Week UM, which we
• 21:46
  Speaker 1: call retail second season, will add another seventy three billion
• 21:50
  Speaker 1: dollars to which that begs grant hold of six and
• 21:53
  Speaker 1: seventy one billion dollars for the season ended in the
• 21:56
  Speaker 1: ending on the thirty one, and that is about five
• 21:59
  Speaker 1: five points x five points adversent above UH last year
• 22:04
  Speaker 1: and last but not least that is the best of
• 22:06
  Speaker 1: two thousand five six to what do you attribute this uh?
• 22:11
  Speaker 1: This performance um pens three major factors. First and most
• 22:15
  Speaker 1: important is rising disposable in real personal income that has
• 22:20
  Speaker 1: been basically flatlining for most of the last decade. It
• 22:23
  Speaker 1: began turning up about a year and a half ago,
• 22:25
  Speaker 1: and this year real income growth has been has been
• 22:28
  Speaker 1: fairly decent. UH. Second factor is UH the wealth effect,
• 22:33
  Speaker 1: primarily from rising UH stock markets. Everybody's seen them the
• 22:37
  Speaker 1: last year. And then the third effect is more of
• 22:40
  Speaker 1: a little bit different angle. UM. The single biggest deterrent
• 22:44
  Speaker 1: to spending if people have money is fear of job
• 22:49
  Speaker 1: loss UM. And right now, job losses as in the
• 22:53
  Speaker 1: unemployment new unemployment claims are at a forty four year
• 22:56
  Speaker 1: low since the nineties seventies, and so people feel much
• 23:00
  Speaker 1: more securing their jobs and they're so they're willing to spend.
• 23:04
  Speaker 1: Well this continue. You can only I mean, for so
• 23:07
  Speaker 1: long can you just believe that you're not going to
• 23:09
  Speaker 1: lose your job and therefore you will always make enough
• 23:11
  Speaker 1: money to cover your bills? Is that really something that
• 23:14
  Speaker 1: can be counted on? Well, nothing can be a hund
• 23:18
  Speaker 1: counted on for sure. But the one thing we do
• 23:20
  Speaker 1: know in terms of whether this strong you know this,
• 23:23
  Speaker 1: this has really been a cracker jack Christmas for for
• 23:26
  Speaker 1: retailers and consumers PAM, and we think that this will
• 23:30
  Speaker 1: continue because all the ingredients are in place. One, we
• 23:33
  Speaker 1: have a very broad based UH retail UH the season
• 23:38
  Speaker 1: this year, all merchandise categories. It's across all fourmats. Whether
• 23:42
  Speaker 1: it's discount, big box, specialty, department store. Everybody is doing
• 23:46
  Speaker 1: better or at least less worse. And then last but
• 23:48
  Speaker 1: not least, there is there's strength at all income quintiles.
• 23:53
  Speaker 1: All five income quintiles are spending more than they did
• 23:55
  Speaker 1: last year. That that shows that there's a broad based thing.
• 23:59
  Speaker 1: And this is even for the tax cuts. So with
• 24:01
  Speaker 1: a new Trump tax cut bill, that should be an
• 24:03
  Speaker 1: added you know, an added booster that should sustain through
• 24:07
  Speaker 1: two thousand eighteen and maybe maybe beyond. So why all
• 24:11
  Speaker 1: of the negativity surrounding the retail investment world, in other words,
• 24:17
  Speaker 1: investing in Nordstrom, investing in Macy's, Calls and so on.
• 24:21
  Speaker 1: Why is there such negativity around investing in retail outlets. Well,
• 24:26
  Speaker 1: the examples you all used, You just used Calls North
• 24:30
  Speaker 1: from Macy's. They're all department stores. And the department store
• 24:33
  Speaker 1: sector is one of the weaker sectors. It's not you know,
• 24:36
  Speaker 1: anything home related does very well, home improvement, home furnishings,
• 24:40
  Speaker 1: but the department store sector is still lagging. But even
• 24:43
  Speaker 1: even department store sector is less worse than it used
• 24:47
  Speaker 1: to be in some places are actually, we believe, breaking
• 24:50
  Speaker 1: into the positive you mentioned Nords from for instance, UM,
• 24:54
  Speaker 1: which will have positive comps for for the season. So
• 24:58
  Speaker 1: we're we we don't we don't do market psychology. That's
• 25:01
  Speaker 1: above my pay grade. We just see what consumers are
• 25:04
  Speaker 1: actually doing in the stores, what they're spending, what they're
• 25:07
  Speaker 1: spending it on. And right now this is a very
• 25:10
  Speaker 1: very strong holiday season. Are there any particular areas of
• 25:14
  Speaker 1: the retail industry that are strong that For example, the
• 25:18
  Speaker 1: electronics business, well, the consumer electronics has been has been
• 25:22
  Speaker 1: been strong. There's there's a lot of price compression there
• 25:25
  Speaker 1: on the on the TV side, so that pulls down
• 25:27
  Speaker 1: the numbers a little bit. But some of the hottest
• 25:30
  Speaker 1: products that are out there, whether it's the Nintendo Switch,
• 25:33
  Speaker 1: whether the Apple iPhone x iPhone Tana, or the Apple
• 25:36
  Speaker 1: eight plus or the Apple Series three Watch where they
• 25:39
  Speaker 1: finally got it right, those are all very strong and
• 25:41
  Speaker 1: those are all of course selling at full price. And
• 25:44
  Speaker 1: then the other thing that's been very strong anything home related.
• 25:47
  Speaker 1: I mentioned home improvement, mentioned home furnishings, UM and even
• 25:50
  Speaker 1: in the digital world, some of the hottest products where
• 25:53
  Speaker 1: the Amazon Echo, the ECU Dot, Google Home, the Google
• 25:56
  Speaker 1: Home many all have been very very strong sellers. This year.
• 26:00
  Speaker 1: I think for example of a company like Wayfair based
• 26:03
  Speaker 1: in Boston, is that kind of a poster child for
• 26:06
  Speaker 1: what does really well retailing household goods online. Absolutely, Wayfair
• 26:12
  Speaker 1: has been one of the one of the standouts over
• 26:14
  Speaker 1: the last year, you know, well before Christmas. Uh and
• 26:17
  Speaker 1: and it is having we believe, a very strong season,
• 26:20
  Speaker 1: as are almost all the the major home players. Uh.
• 26:25
  Speaker 1: You know, whether it's Williams Sonoma, you know, whether it's
• 26:27
  Speaker 1: r H Restoration Hardware, UM, deadbat Beyond is a little
• 26:31
  Speaker 1: is one of the ones that's been more hurt by
• 26:33
  Speaker 1: the migration to places like uh, Wayfair. But if you're
• 26:38
  Speaker 1: in home, and if you're online, you're probably gonna do
• 26:41
  Speaker 1: pretty well. Well done. Thanks for learning us to all
• 26:44
  Speaker 1: of this. Craig Johnson is the president of Customer Growth Partners.
• 26:48
  Speaker 1: They're based in New Canaan, Connecticut. Thanks for listening to
• 26:52
  Speaker 1: the Bloomberg p m L podcast. You can subscribe and
• 26:55
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 26:59
  Speaker 1: plaque form you prefer. I'm pim Fox. I'm on Twitter
• 27:03
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 27:06
  Speaker 1: one before the podcast. You can always catch us worldwide
• 27:09
  Speaker 1: on Bloomberg Radio.