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China, Equities, ETFs, and Commodities (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 on 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 just reading on the
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Speaker 1: Bloomberg termoil right Now. Protests against china strict COVID measures
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Speaker 1: failed to materialize on Monday as a Chinese authorities deployed
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Speaker 1: a heavy police presence in the capital on other major
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Speaker 1: cities to deter a repeat of the weekend's demonstrations. When
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Speaker 1: we saw that news over the weekend, I said, we
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Speaker 1: need to check in with Leland Miller. He's our go
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Speaker 1: to voice and all things China. He's the CEO of
0:41
Speaker 1: China bag Book International. Leland, We I'd love to get
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Speaker 1: your perspective given your experience in China. What did we
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Speaker 1: really see over the weekend with some of these demonstrations.
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Speaker 1: What are the takeaways? Well, clearly frustration is boiling over.
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Speaker 1: You know, the Chinese people have to deal with a
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Speaker 1: very draconian zero COVID policy for UH for months and
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Speaker 1: months and months and months and months and months now,
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Speaker 1: and it is crushed economic activity, it's crushed travel, it's
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Speaker 1: it's torn families apart. UH. And so I think that
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Speaker 1: there is a desire right now to send a message
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Speaker 1: that this needs to end. UH. And I think a
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Speaker 1: lot of the protests UM, we're about a frustration with
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Speaker 1: the leadership for not providing a roadmap out of this UH.
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Speaker 1: You know, winter is COVID spreading season. Things were never
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Speaker 1: going to be opened up over the winter and there
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Speaker 1: and then they're still not going to be UH for
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Speaker 1: the most part. But I think that the idea that
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Speaker 1: people still don't have a date on the horizon, they
1:47
Speaker 1: don't have an idea of when when their misery is
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Speaker 1: going to end. I think that this, this this caused
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Speaker 1: things to really boil over. In addition, of course to
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Speaker 1: the fact that you've you've seen some very grizzly events recently,
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Speaker 1: like people trapped in their houses and and uh ire
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Speaker 1: is consuming them. So so this is this has really
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Speaker 1: gotten to a point where where people had enough. Now
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Speaker 1: I'm not sure from from what we understand here in
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Speaker 1: the West, it's incredibly dangerous to protest in China. Right,
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Speaker 1: My idea is that if you go out there, you're
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Speaker 1: literally risking your life. Um, is that really the case?
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Speaker 1: Do people in China understand that? Because that raises really
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Speaker 1: the bar for you know what, I'm willing to go
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Speaker 1: out of my house and protests against Yeah, protests in
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Speaker 1: China aren't uncommon, but what is very uncommon is to
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Speaker 1: see protests uh surging in multiple cities at the same
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Speaker 1: time about the same thing. Uh. This is sort of
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Speaker 1: this is you know, not just about dissatisfaction with the
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Speaker 1: local issue or a bank that people think might be insolving.
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Speaker 1: This is about a fundamental policy that the central government
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Speaker 1: has uh that that that that there's no tolerance for anymore.
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Speaker 1: So the you know, protesting can happen, but this clearly
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Speaker 1: was sending a signal that it could become something much bigger,
3:02
Speaker 1: which is why the authorities have moved in to try
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Speaker 1: to stop it from from from boiling out of control
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Speaker 1: in the short term, Leland, Does the Chinese government not
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Speaker 1: understand Did the Chinese people not understand that they can't
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Speaker 1: get to some level of herd immunity without massive vaccinations.
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Speaker 1: That's what the rest of the world has learned. How
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Speaker 1: has it spun within China? Well, the the way the
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Speaker 1: Beijing has handled this over the past year or so,
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Speaker 1: past two years or so has has been quite puzzling.
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Speaker 1: You know. The for for the first two years and one,
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Speaker 1: there were you know, there was there was there were
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Speaker 1: tight restrictions on on COVID, but nothing like what we've
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Speaker 1: seen in There was plenty of time for the leadership
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Speaker 1: to have started a vaccine rollout, to imported mr and
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Speaker 1: A vaccines, to do a lot of the things that
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Speaker 1: China needs in order to get out of this, and
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Speaker 1: none of it was done. And of course the you know,
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Speaker 1: the belief is that that she didn't want to be
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Speaker 1: embarrassed by importing foreign vaccines. He wanted Chinese companies to
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Speaker 1: be able to do it so they could claim victory
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Speaker 1: domestically over the virus. But it's gotten to the point where,
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Speaker 1: you know, we're we're here on the on the cusp
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Speaker 1: of three. Most of the world has mostly moved on
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Speaker 1: from COVID, and China is looking at what could probably
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Speaker 1: going to be the worst COVID outbreaks that they've seen
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Speaker 1: in the coming months. And so the policy response has
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Speaker 1: been completely puzzling, and I think that's one of the
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Speaker 1: reasons that people are are so frustrated. Is there any
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Speaker 1: element of you know, the party maintains control over the
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Speaker 1: people by locking them down. I mean, it sounds so
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Speaker 1: dramatic and it's but in a sense, I can't understand
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Speaker 1: how that would actually work. Yeah, you hear that a lot.
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Speaker 1: It's it's hard to believe that this is about control.
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Speaker 1: Uh first and foremost. Uh. You have a situation where,
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Speaker 1: you know, health, health, health risks aside, the economy needs
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Speaker 1: to be open in order to thrive, in order to
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Speaker 1: just be able to tread water. And what's happening right
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Speaker 1: now is remarkable. Um, you saw very very few people
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Speaker 1: as we entered two believing that you know, there wouldn't
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Speaker 1: be a second half bounce, that she wouldn't relent at
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Speaker 1: certain point, and nothing of the sort has happened. So
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Speaker 1: if you look at what's likely to happen in the
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Speaker 1: coming months, the party has got to be responsive, look
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Speaker 1: at least look responsive to the people who are protesting
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Speaker 1: right now. So there will be some sort of rhetorical relaxation.
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Speaker 1: There's some policies they could target, they could talk about
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Speaker 1: less you know, splitting families apart, and they can talk
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Speaker 1: about you know, less stringent lockdowns or lockdowns for for
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Speaker 1: for short amounts of time, But you're about to go
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Speaker 1: into the winter months where COVID will spread out of
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Speaker 1: control if there is no sort of control mechanism. And
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Speaker 1: so there's really no good answer right now to to
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Speaker 1: to to the problem that the Chinese government has to solve.
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Speaker 1: They cannot functionally open up the economy and not have
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Speaker 1: massive COVID outbreaks, but they can't keep the population under
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Speaker 1: control indefinitely under a draconian COVID zero. So you're likely
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Speaker 1: to see them try to thread the needle, try to
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Speaker 1: do the middle ground, and there's no guarantee that's not
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Speaker 1: gonna be a disaster as well. Yeah, that is. It's
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Speaker 1: tough stuff. I don't know how they're going to manage that.
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Speaker 1: Leland Miller, thanks so much for taking the time today.
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Speaker 1: We absolutely wanted to hear from you to get your
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Speaker 1: latest thoughts on China. Here, Leland Miller used to see
6:24
Speaker 1: of the China Basebook International. They have their own proprietary
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Speaker 1: data sets and data sources over in China get some great,
6:30
Speaker 1: great information. Well, China seems to be one of the
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Speaker 1: narratives of this Monday morning trading demonstrations over the weekend
6:41
Speaker 1: causing some uneasiness as it relates to that economy, Apple
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Speaker 1: saying they're going to be short maybe six million iPhones
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Speaker 1: because of the disruptions and there plants over there in China,
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Speaker 1: So we need to just kind of get a circle
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Speaker 1: around this whole thing. We'll do that with Gina Martin Adams,
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Speaker 1: chief equity strategist of Bloomberg Intelligence, and a Rack Ronnick.
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Speaker 1: He's a senior tech an also Bloomberg Intelligence as well. Gina,
7:02
Speaker 1: let's start with you, how do you factor in I
7:04
Speaker 1: don't know, China risk if you will to your market outlook. Yeah,
7:09
Speaker 1: I think with respect to the US, China risk is
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Speaker 1: largely centered on the multinational securities that do have exposure
7:16
Speaker 1: either import exposure or export exposure to China. UM. So
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Speaker 1: clearly any sort of persistent slowdown into three, persistence of
7:27
Speaker 1: these lockdown measures and the zero COVID policy is a
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Speaker 1: constant drag on this space in two that will continue
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Speaker 1: into three. For global equities, there really is a matter
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Speaker 1: of the investment opportunity set just continually shrinking with the
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Speaker 1: lack of kind of the investibility of China. This recall
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Speaker 1: for the last more than fifteen nearly twenty years now,
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Speaker 1: China was anticipated to be a very strong emerging market player,
7:54
Speaker 1: and that was certainly reflected in its growing share of
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Speaker 1: the market cap of the global indices over the last year,
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Speaker 1: even closer to two years. Now that's really come under question,
8:04
Speaker 1: and it makes pretty tremendous train tremendous sea change in
8:09
Speaker 1: the investibility of global markets. Not having that big player
8:13
Speaker 1: as an area where you can put capital in the
8:16
Speaker 1: global markets has resulted in a flight to other areas
8:19
Speaker 1: in emerging markets, in particular India, whereas evaluation premium for
8:23
Speaker 1: Indian securities is off the charts, investors have clearly tried
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Speaker 1: to find ways to you know, leverage emerging market growth.
8:31
Speaker 1: What about China? What about producers? Um, let's bring in
8:34
Speaker 1: on a rag here. Um, it's fascinating what the point
8:39
Speaker 1: gene is making about valuations on the stocks. But you know,
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Speaker 1: producers that make consumer goods like apple still seem to
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Speaker 1: have no problem. Um, you know, made in China, having
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Speaker 1: made in China stamped on their on their products and
8:52
Speaker 1: consumers still buy them like crazy. Right? Is that changing
8:55
Speaker 1: it all? On a rug. I don't think so, and
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Speaker 1: only the reason is there is no donative at this point.
9:00
Speaker 1: I mean, what are you going to do by a
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Speaker 1: Nokia phone? So I mean, but they could produce in
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Speaker 1: India for example, like investors are there instead? Right, No,
9:09
Speaker 1: that's the fair point. But the thing is this is
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Speaker 1: unlike stocks, this supply chain took twenty years to build.
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Speaker 1: You just can't get up and start building iPhones anywhere else.
9:17
Speaker 1: They have already started to do that, but just less
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Speaker 1: than five percent of all iPhone assembly, and and a
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Speaker 1: large rationale for that is the supply chain for most
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Speaker 1: electronic goods is centered in China. So don't talk to
9:32
Speaker 1: us about you know, what's Apple really doing day to
9:35
Speaker 1: day to try to mitigate this issue? What have you seen?
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Speaker 1: So we have already heard that they are assembling these
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Speaker 1: phones outside the China at this point, and I think
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Speaker 1: it's going to take four or five years to make
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Speaker 1: a meaningful DNT to that. The second part is going
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Speaker 1: to be are they you know, the parts and the
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Speaker 1: other things that they need to actually assemble these products?
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Speaker 1: Are they going to start sourcing them outside now? For
9:59
Speaker 1: that they really need to invest eggressively in areas such
10:02
Speaker 1: as Mexico or other low cost regions where they can
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Speaker 1: manufacture some of these pots without that, you know, the
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Speaker 1: supply chain doesn't make any sense to um, you know,
10:13
Speaker 1: just do things in isolation, because at any given time
10:16
Speaker 1: they are making millions of these units. It's not you know,
10:19
Speaker 1: something that has only a few thousands that you produced,
10:23
Speaker 1: all right, it's fascinating. So they basically can't, is what
10:26
Speaker 1: you're saying, move substantially, UM as quickly as investors can.
10:32
Speaker 1: I just wonder if that means Gina. Does that mean
10:34
Speaker 1: that there's an opportunity here? I mean, do you buy
10:37
Speaker 1: the dip in that situation knowing that it has to
10:39
Speaker 1: come back by the dip in China? Is that the question? Um?
10:43
Speaker 1: You know, I think for investors that are willing to
10:47
Speaker 1: take a tremendous amount of risk, your potential reward for
10:50
Speaker 1: taking on that degree of risk is is fairly substantial, right,
10:54
Speaker 1: But I at this point in time, it's relatively unpredictable.
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Speaker 1: Most rational people are acting that the results of these
11:01
Speaker 1: protests over the weekend will be more further compression and
11:05
Speaker 1: economic activity more clamped down as the authorities in China
11:10
Speaker 1: try to take on you know, um, these protesters. So
11:14
Speaker 1: I think that the risk is tremendous right now. That said,
11:18
Speaker 1: the stocks are incredibly discounted. You are taking a risk
11:21
Speaker 1: that there is no opening coming in three Nonetheless, there
11:26
Speaker 1: is very little expectation for growth baked into prices. So
11:30
Speaker 1: I think that your risk reward works, right. You take
11:34
Speaker 1: on a lot of risk, You could get a tremendous
11:35
Speaker 1: amount of reward, but it is it is a lot
11:37
Speaker 1: of risk. Admittedly, all right, Gina, great stuff. Appreciate checking
11:42
Speaker 1: in with us, Gina. Martin Adams, chief equity strategist for
11:45
Speaker 1: Bloomberg Intelligence, and Anama Rana used to senior tech animals
11:48
Speaker 1: with Bloomberg Intelligence. Well he falls Apple very closely. And again,
11:52
Speaker 1: investors today are just trying to parts what's going on
11:55
Speaker 1: in China, What does that mean for the outlook for
11:58
Speaker 1: global economic growth, What does it mean for some of
12:00
Speaker 1: the tech companies that still like Apple, rely pretty heavily
12:04
Speaker 1: on the supply chain, with lots of parts of that
12:07
Speaker 1: in mainland China. And you think about how this government
12:10
Speaker 1: is dealing with the zero COVID policy and what that
12:12
Speaker 1: means for economic activity. So again that's kind of the
12:15
Speaker 1: narrative of what this market is trying to digest. Let's
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Speaker 1: talk China. Let's talk kind of investing in emerging markets.
12:25
Speaker 1: Because we're talking marging markets. The M S c I
12:28
Speaker 1: big part of that is China. We can do that
12:30
Speaker 1: today with Kevin Carter. He's the c I O and
12:32
Speaker 1: founder of E m q Q Global. He joins US
12:36
Speaker 1: Live and our Bloomberg Interactive Broker studios, so he gets
12:39
Speaker 1: an extra gold star today for being live, not phoning
12:42
Speaker 1: it in. Kevin, You've been doing business. So let's start
12:45
Speaker 1: with the acronym. We always throw around these acronyms, and
12:47
Speaker 1: I feel like I guess emerging markets and then it's
12:51
Speaker 1: tech tech stocks y K E m q Q. Well
12:55
Speaker 1: that's exactly, and it's emerging markets technology and and specifically
12:59
Speaker 1: it's emerging market can sumer technology. It's the smartphone enabled
13:02
Speaker 1: emerging market consumer that we're trying to tap into. So yes,
13:06
Speaker 1: E is for emerging, M is for market in. Q Q,
13:09
Speaker 1: as you know, is synonymous with tech investing and also
13:13
Speaker 1: a sort of double and tender because the ten Cent
13:16
Speaker 1: original platform that messaging was called q Q. That's right
13:19
Speaker 1: back in the day. So when it's an E t
13:21
Speaker 1: F by the way it is Q. Yeah, then that's
13:23
Speaker 1: an exchange traded fund. That's correct, exactly. I just want
13:27
Speaker 1: to clear this up because a lot of people driving
13:29
Speaker 1: around like one cm QQ exactly, and then they don't
13:31
Speaker 1: know there's an e t F. So if they like
13:33
Speaker 1: what Kevin has say, can't go and buy it. If
13:34
Speaker 1: they think it's hogwash, they can sell it or whatever.
13:37
Speaker 1: You know. Yeah, well, the indexes are are up this year,
13:40
Speaker 1: so good stuff. All right, talk to us about your
13:43
Speaker 1: take from China. I mean you've been doing business there
13:45
Speaker 1: for a long time, investing in these companies and these industries.
13:48
Speaker 1: What's your takeaway. Well, look, China is the second largest
13:52
Speaker 1: economy in the world at least, and a big thing,
13:55
Speaker 1: and it's been the biggest part of the Emerging markets indexes,
13:58
Speaker 1: the broad ones over UM, and it's an important place.
14:03
Speaker 1: But it's different than us, and it has its own
14:06
Speaker 1: challenges in its own ways of doing things, and I
14:08
Speaker 1: think it's hugely misunderstood. I think there's a lot of
14:10
Speaker 1: fears about China UM that are unfounded, things like delisting,
14:18
Speaker 1: the so called government crackdown. So I think China's why
14:22
Speaker 1: are those unfounded? I have those fears and I feel
14:25
Speaker 1: like they're founded quite well. Well, um uh, I could
14:31
Speaker 1: go into disappeared for a couple of months. When the
14:34
Speaker 1: when the richest guy in the country just disappears for
14:37
Speaker 1: a few months, that's worrying. Yes, well, I think Jack's
14:40
Speaker 1: doing five but um but look what we do is
14:44
Speaker 1: invest in the internet and any commerce companies in emerging markets,
14:47
Speaker 1: including China. And the reality is that while China might
14:50
Speaker 1: be an emerging market in a traditional sense, when it
14:54
Speaker 1: comes to the Internet and e commerce and smartphones, China
14:58
Speaker 1: is the most developed country on planet by far. I mean,
15:01
Speaker 1: China is the Jetsons and their e commerce market dwarfs
15:06
Speaker 1: the rest of the world, and it's actually four times
15:08
Speaker 1: bigger than the other forty five emerging markets combined. So
15:11
Speaker 1: China is important. It's an important part of the global
15:14
Speaker 1: consumer internet story. But it's the second wave, and it's
15:17
Speaker 1: the third wave that's coming beyond China that I think
15:20
Speaker 1: investors should be looking at. I think a fair question
15:22
Speaker 1: is is China even investable today? Well? I think it
15:26
Speaker 1: certainly is. There are places like Russia that are definitely
15:30
Speaker 1: not investable currently in a traditional sense, but no, I
15:33
Speaker 1: think China is very much investable but it you know,
15:35
Speaker 1: it's it's a volatile place for sure, and I think
15:38
Speaker 1: it always will be. And well, we just had Gina
15:40
Speaker 1: Martin Adams on from Bloomberg Intelligence who said there's a
15:42
Speaker 1: lot of risk there, but the rewards are massive. Um,
15:46
Speaker 1: the third wave that you speak of, is this also
15:49
Speaker 1: a China play or are you talking about India? We
15:51
Speaker 1: were talking about during the commercial how important India could be. Sure. So,
15:54
Speaker 1: so we have a second strategy, which is the emerging
15:57
Speaker 1: markets Internet companies ex China, which we called fm q
16:00
Speaker 1: Q and the way to think about, uh, what's happening
16:05
Speaker 1: on the planet, and it's happened here, but it happened
16:07
Speaker 1: here so long ago. We forget that this is a
16:10
Speaker 1: wave that's happening. But you have sort of three mega trends.
16:13
Speaker 1: You have billions of new consumers and emerging markets. They're
16:17
Speaker 1: getting their first computer in form of a smartphone that
16:20
Speaker 1: costs eighty dollars brand new and is running on Android,
16:23
Speaker 1: and they're getting access to the Internet for the first time.
16:26
Speaker 1: And because they don't have a computer, uh you know
16:29
Speaker 1: it's a traditional computer, they don't have a bank account,
16:31
Speaker 1: there's no target stores. These people are leap frogging traditional consumption.
16:35
Speaker 1: And so the first wave of consumer internet technology on
16:40
Speaker 1: the planet started in the US around the year two
16:42
Speaker 1: thousand and we had a fifteen year S curve of growth.
16:46
Speaker 1: The second wave, the China wave, started about two thousand
16:49
Speaker 1: five with Ali Baba ten Cent Bai Do, which went
16:52
Speaker 1: public before Google, and that wave, that S curve. You know,
16:55
Speaker 1: it's still growing, but the steepest part of that growth
16:58
Speaker 1: curve is behind us. And now you have India, Nigeria, Indonesia, Brazil,
17:04
Speaker 1: all of these other five and a half billion people
17:07
Speaker 1: that are getting their first computer today and again it's
17:10
Speaker 1: not on their desk, it's in their pocket and it
17:12
Speaker 1: costs sixty dollars and they're getting the Internet for the
17:15
Speaker 1: first time. And that story is just getting started. And
17:19
Speaker 1: FM can QQ. So if I look at the performance
17:22
Speaker 1: year to date, obviously everything's down um and and E
17:26
Speaker 1: m q Q is down thirty six percent. F m
17:29
Speaker 1: q Q is down fifty Is there uh, you think
17:34
Speaker 1: less risk in in the frontier markets. Well, I think
17:39
Speaker 1: there's a lot less risk in both versions because they're
17:42
Speaker 1: both down as you mentioned quite a bit. And in fact,
17:45
Speaker 1: you know, the broader E m q Q is down
17:47
Speaker 1: at least at one point, you know, over se as
17:51
Speaker 1: of a couple of weeks ago. So this is a
17:53
Speaker 1: volatile place. But we're investing in companies, were investing in
17:57
Speaker 1: what we think are going to be the most important
18:00
Speaker 1: growth businesses on the planet for the next couple of decades.
18:02
Speaker 1: And those are the Internet companies that are providing all
18:06
Speaker 1: the same things that the Fank stocks provide us, but
18:08
Speaker 1: they're providing those services to the five and a half
18:11
Speaker 1: billion people in India, in Brazil and the places I mentioned.
18:15
Speaker 1: And that is if you're going to invest in emerging markets,
18:18
Speaker 1: that's where you want to And these are actively managed.
18:20
Speaker 1: I mean, this isn't you're not tracking an index here now,
18:23
Speaker 1: these are these are rules based indexes. So we you know,
18:26
Speaker 1: we own every publicly traded emerging markets internet company in
18:30
Speaker 1: our broader offering. And then the ex China version fm
18:33
Speaker 1: q Q owns, you know, the seventy five or so
18:36
Speaker 1: that are not Chinese. What's number one on your to
18:39
Speaker 1: do list looking at these companies in terms of due diligence?
18:42
Speaker 1: Is a quality of management? Is it? Soundness of business models?
18:46
Speaker 1: A balance sheet? How do you guys? Rule of law? Overall? Yes,
18:49
Speaker 1: thank you. Well, you know again, the world's got a
18:53
Speaker 1: lot of risk, and emerging markets have a lot of risk.
18:55
Speaker 1: I mean, we've seen in Russia this year, I mean
18:57
Speaker 1: war and you know your stocks basically wiped out completely.
19:00
Speaker 1: So you know there's no free lunch, and emerging markets
19:03
Speaker 1: and and and there is volatility um in terms of
19:06
Speaker 1: the main part of the due deligence we do is
19:09
Speaker 1: just identifying these companies because one of the problems, particularly
19:13
Speaker 1: in emerging markets, is that the database has so much power.
19:16
Speaker 1: And the biggest problem in the traditional indexes is that
19:20
Speaker 1: about a third of the companies are government owned banks
19:22
Speaker 1: and oil companies, state owned enterprises, which, in addition to
19:27
Speaker 1: having conflicts of interest and inefficiency, there's corruption that's rampant.
19:32
Speaker 1: And the second problem with the indexes is most of
19:34
Speaker 1: the internet companies aren't included. So if you look at
19:37
Speaker 1: Latin America, for example, Mercado Libre, the Amazon dot Com
19:41
Speaker 1: and PayPal of every country in Central and South America,
19:45
Speaker 1: it's not in the index. New Bank, the largest online
19:48
Speaker 1: bank in the world out of Brazil, backed by Berkshire Hathaway,
19:51
Speaker 1: and you on the New York Sock stage not in
19:53
Speaker 1: the index. So the first thing is to make sure
19:56
Speaker 1: that we find all these companies because the traditional approaches
19:59
Speaker 1: are leave being a big hole. Wow, good stuff, talk
20:02
Speaker 1: about risk and hopefully return. Kevin Carter, c I O
20:06
Speaker 1: and founder of E m q Q Global talking about
20:09
Speaker 1: emerging markets here. The risk reward UH certainly front of
20:13
Speaker 1: mind for a lot of investors today as we kind
20:15
Speaker 1: of process what's going on in China, as we've got
20:19
Speaker 1: another data point with Apple Computer and their production issues,
20:22
Speaker 1: So front of mine for emerging market investors. W T
20:29
Speaker 1: a coop oil getting back lots of the losses I
20:33
Speaker 1: had earlier today. We had reached a low today of
20:35
Speaker 1: seventy three dollars and sixty cents per barrel. We're now
20:38
Speaker 1: it's seventy five seventy five cents a barrel, off about
20:40
Speaker 1: six tenths of one percent. By the way, I just
20:42
Speaker 1: texted you a photo you did, and I texted Eric
20:45
Speaker 1: also check it out. I was at UH. I was
20:47
Speaker 1: in Newark, Ohio this week. I drove by a gas
20:51
Speaker 1: station called Sheets, which you may know if you're a
20:53
Speaker 1: trucker or if you spend a lot of time on highways.
20:56
Speaker 1: They had a dollar ninety nine a gallon unladed. That
21:00
Speaker 1: is amazing, and I guess it's I guess it was
21:03
Speaker 1: some kind of marketing thing. But my nephew at the Thanksgiving,
21:06
Speaker 1: you know, gathering, when the whole extended family was there,
21:10
Speaker 1: he's just got his driver's license, so he went around
21:12
Speaker 1: the house collecting people's keys and driving out to fill
21:15
Speaker 1: up at the sheets for his stuff, adding value there
21:19
Speaker 1: for in the of a Miller household. All right, we've
21:22
Speaker 1: got global energy here, let's talk about it. Let's round table.
21:25
Speaker 1: We can do that with Fernando Valley. He covers this
21:28
Speaker 1: stuff for Bloomberg Intelligence and Mike mcloney's our commodity strategist
21:32
Speaker 1: for Bloomberg Intelligence. I have no idea where these people are,
21:35
Speaker 1: but they're not in studio. I can tell you that
21:37
Speaker 1: Fernando talk to me about I guess you know your
21:41
Speaker 1: view of crude here. Is it all hinging upon demand
21:45
Speaker 1: out of China in the short term fall. I think
21:49
Speaker 1: that's correct. It's China, and then it is the Western
21:52
Speaker 1: world as well, because if you remember we talked about
21:56
Speaker 1: how you're his cartailing their demand in order to meet
21:59
Speaker 1: their needs for winter, and then inflation is impacting consumers
22:04
Speaker 1: on the US globally really, but in the US and
22:06
Speaker 1: emerging markets UH, and that will impact short term demand.
22:10
Speaker 1: I think when we look towards the second half of
22:13
Speaker 1: twenty three and beyond, then supply becomes a bigger question
22:16
Speaker 1: than the men. But in the short term we see
22:18
Speaker 1: a lot of those pressures continuing. The consumer is squeezed,
22:22
Speaker 1: and in China, between COVID zero and their own economic
22:25
Speaker 1: walls growth UH presents a big risk for those demand Mike,
22:31
Speaker 1: what's your take on what what we see happening in China.
22:34
Speaker 1: Apparently the protests have been quelled today, um, but I
22:39
Speaker 1: still think it's pretty monumental that people are willing to
22:43
Speaker 1: risk lives and livelihood and come out to protest. I
22:47
Speaker 1: think that's part of the micro from China. The macro
22:50
Speaker 1: is China incremental to mind, demand from China in terms
22:53
Speaker 1: of all commands have been declining for a long time.
22:56
Speaker 1: There in points of crewe I really peaked a few
22:58
Speaker 1: years ago. Now Fernando can speak to that more everybody.
23:00
Speaker 1: A lot of the the bulls have been spoken to
23:03
Speaker 1: the opium, but I've been pointing out this has been
23:06
Speaker 1: happening for quite a while. Our Chinese strategists out of
23:10
Speaker 1: Agias said, the property crisis still is another more to go.
23:13
Speaker 1: So to me, that major inclemantal source of demand in
23:16
Speaker 1: the world has been bad for a while. And you've
23:18
Speaker 1: looked at the agend they tried. They dropped the triple
23:21
Speaker 1: R rate last week. The first time they cut the
23:22
Speaker 1: triple R rate was almost ten years ago, so they've
23:24
Speaker 1: been they've been trying to support their counting for quite
23:26
Speaker 1: a while. And I like to point out what's really
23:28
Speaker 1: happened in the last ten years is OPEC's largest customer
23:31
Speaker 1: used to be US is now a competitor. So to me,
23:33
Speaker 1: that's part of the reason we're going to continue to
23:35
Speaker 1: go lower and crude oil now I think now it's
23:37
Speaker 1: pretty good price, but the key thing is it got
23:38
Speaker 1: too expensive. That pendulum swung too expensive, nownce the question
23:42
Speaker 1: of how cheap will it get, And it's almost guaranteed
23:45
Speaker 1: to get some form of cheapness as a world tilts
23:47
Speaker 1: towards recession, as our economist model for the US recession
23:51
Speaker 1: is very high for next year. So to me, this
23:53
Speaker 1: is just part of that pendulum sweeking back. And one
23:55
Speaker 1: thing that Crudel has been doing is just following copper
23:57
Speaker 1: copper on the year. But my does doesn't OPEC come
24:01
Speaker 1: in with more production cuts as the price falls responsive.
24:05
Speaker 1: OPEC is notorious for cutting prices in and when prices
24:09
Speaker 1: drop a lot, their job is to keep prices up.
24:11
Speaker 1: So the mast big example is two thousand and eight,
24:14
Speaker 1: so OPEC will remember OPEC used to be of total
24:18
Speaker 1: supply around ten years ago. Now they're less than thirty.
24:20
Speaker 1: They're less and less important. The most significant thing that's
24:23
Speaker 1: pressure crude oil prices. Since two thousand six, which is
24:26
Speaker 1: the first time we traded, the current price on the
24:28
Speaker 1: screen has been US supply and Canada supply seeing demand,
24:32
Speaker 1: and the US demand actually peaked right around that time.
24:35
Speaker 1: So this is a major paradigm shift. And this is
24:38
Speaker 1: what I see is crudal is just a massive swinging
24:40
Speaker 1: pendulument got too expensive, going back down, and OPEC is
24:43
Speaker 1: becoming less and less significant. And yes they will cut
24:46
Speaker 1: because they pointed out the Feds tighten and they see
24:49
Speaker 1: the demand destruction. That's the biggest factor right now. And
24:51
Speaker 1: I think Fernando even led to a demand structure and
24:53
Speaker 1: now is just getting started. The question I asked, what
24:56
Speaker 1: stops this process? It's not going to be fed or
24:58
Speaker 1: Central Bank Easy. So, Fernando, you know we're talking about
25:03
Speaker 1: some of the US shale operators. What are they telling
25:06
Speaker 1: you about production capacity all that kind of stuff. Well,
25:11
Speaker 1: they are struggling with inflation themselves, and they're struggling to
25:15
Speaker 1: grow at the rates from from prior years. And so
25:19
Speaker 1: in the short term there is a little bit of
25:22
Speaker 1: growth still left. But we we really think that US
25:26
Speaker 1: shell is not going to reach the levels expected a
25:29
Speaker 1: few years back of fifteen sixteen million barrels a day
25:32
Speaker 1: for total US production. We really think we're nearing our
25:36
Speaker 1: overall peak and supply. And that's why I agree with
25:39
Speaker 1: Mike in the short term that the main is a
25:41
Speaker 1: much more relevant issue, and then the pendulum swings back
25:46
Speaker 1: towards the upside once we don't have enough supply and
25:50
Speaker 1: and Mike alluded to effect not being as important. We
25:52
Speaker 1: also don't know that they have the spare capacity to
25:55
Speaker 1: overcome that weakness in US shale. Uh. And then we
25:59
Speaker 1: really that the inventory picture in the U S show
26:02
Speaker 1: is a lot dimmer than was projected even one A
26:07
Speaker 1: lot of the high quality acreage has been drilled, and
26:10
Speaker 1: if you look at the productivity for a well in
26:13
Speaker 1: all four large US shale basines. They're weaker in two
26:17
Speaker 1: than he was in So just got about thirty seconds here, Fernando, Um,
26:23
Speaker 1: do we start to see real drops in prices at
26:26
Speaker 1: the pump as well? I know that there's a big
26:29
Speaker 1: mechanism that needs to, you know, be played out. But
26:33
Speaker 1: and I've lost all hope for diesel, But for regular
26:35
Speaker 1: unletted does it continue to come down towards the sheets
26:38
Speaker 1: dollar gallon level? Yeah, I believe that's that's true. Maybe
26:44
Speaker 1: less so in the northeast of the US just because
26:46
Speaker 1: of logistical issues. But when you look into the Mid
26:49
Speaker 1: Continent Gulf Coast, you should see lower prices over for
26:53
Speaker 1: the remainder of the year. Uh, with Brent and w
26:55
Speaker 1: T selling off, and then even the crack spreads themselves
26:59
Speaker 1: are little bit weaker. So you should see some relief.
27:02
Speaker 1: Holiday relief, alright, good stuff for other people, Paul, Not
27:06
Speaker 1: for us, No, not not for us, not in New Jersey.
27:08
Speaker 1: For Nono Vali senior analysts Bloomberg Intelligence covering all the
27:11
Speaker 1: energy space, and Mike mcgloan, he's our commodity strategist for
27:15
Speaker 1: Bloomberg Intelligence, breaking down what's going on in global energy today.
27:21
Speaker 1: Is Cyber Monday. You're gonna click away met and make
27:24
Speaker 1: some purchases here today. I I've already done it. You've
27:28
Speaker 1: done it. Look at you? Because I don't know how
27:31
Speaker 1: much it really matters Cyber Monday. I started to see
27:33
Speaker 1: huge deals pop up like on Thursday and Friday. Alrighty, okay,
27:37
Speaker 1: all right, let's bringing Jen Bartasha. She's senior equity research channel.
27:40
Speaker 1: She covers all the retail stuff for Bloomberg Intelligence. Jen
27:44
Speaker 1: talk to us about kind of what we know so
27:46
Speaker 1: far during this you know, Black Friday coming into cyber
27:50
Speaker 1: what was it? How was it? Well, you know it
27:52
Speaker 1: was it was probably a little bit better than people expected,
27:55
Speaker 1: but it was nothing spectacular. Um. And that really shouldn't
27:58
Speaker 1: be a surprise to anyone because we've got consumers who
28:01
Speaker 1: are a little bit more conservative, um. And we have
28:04
Speaker 1: retailers who have spread out those deals, as Matt was saying,
28:07
Speaker 1: over a really long period of time. Yeah, I mean
28:10
Speaker 1: they've already they already started to announce them before Black Friday,
28:13
Speaker 1: and they seemed to last. Awhile, are retailers having a
28:18
Speaker 1: problem with inventory across the board or is it just
28:21
Speaker 1: specific stores that got stuck? It was really some specific
28:26
Speaker 1: stores that we're having inventory issues, UM and and specific
28:30
Speaker 1: categories even within certain stores. And so, you know, apparel
28:34
Speaker 1: has been an issue. I think it's going to continue
28:36
Speaker 1: to be an issue through this holiday season. You know,
28:39
Speaker 1: we had our entire retail team out on Black Friday,
28:41
Speaker 1: coming through stores, hitting the malls, UM. And you know,
28:44
Speaker 1: we saw there were bags people were buying things, but
28:47
Speaker 1: it wasn't in bulk. And and apparel was one of
28:49
Speaker 1: those areas where people were buying very specific things in apparel,
28:53
Speaker 1: it wasn't across the board. UM. So you know, I
28:56
Speaker 1: think it's kind of a mixed a mixed result. UM.
29:00
Speaker 1: But the good news was that people were out and
29:02
Speaker 1: they were looking for deals. And if I were to
29:05
Speaker 1: go shopping, and that's a big if, Jen, will I
29:07
Speaker 1: find stuff on the shelves, you will UM that the
29:11
Speaker 1: inventory seems to be pretty right sized. UM. You know,
29:14
Speaker 1: there are certain certain hot items that are are out
29:18
Speaker 1: of stock. You know, we do an annual toy survey,
29:20
Speaker 1: for example in Bloomberg Intelligence. UM, and there are some
29:24
Speaker 1: hot toys of the seasons that are out of stock
29:26
Speaker 1: now across Walmart, Target, Amazon, But it's really very select
29:30
Speaker 1: items at this point. Um, we're hoping that this means that,
29:33
Speaker 1: you know, it'll be a solid season and that they
29:35
Speaker 1: won't be left with too much inventory as we head
29:38
Speaker 1: into January and February. Though, what what are the hot
29:41
Speaker 1: what's the tickle me Elmo of or the cabbage Patch
29:44
Speaker 1: kid of the year. Well, you know, so far this
29:46
Speaker 1: year it's been a lot of video games are out
29:49
Speaker 1: of stock, so people are definitely loving their gaming type
29:52
Speaker 1: of how can video games be out of stock? You
29:54
Speaker 1: just buy a digital copy online. A lot of them
29:57
Speaker 1: still come on the little discs that you pop into
29:59
Speaker 1: those those older consoles, and so you know, those those
30:02
Speaker 1: have been uniformly popular across all the regions. Know why because, um,
30:10
Speaker 1: kids that get them want to be able to resell
30:13
Speaker 1: them later. So that's that's why the existence of those
30:16
Speaker 1: discs or that explains the existence continued existence of those
30:20
Speaker 1: discs and the game shop brick and mortar stores coming
30:23
Speaker 1: from it makes sense. Yeah, they're like trading card versions,
30:26
Speaker 1: but they retain value whereas you know, the digital code,
30:28
Speaker 1: you can't really pass it on. Hey, Jen, I know
30:30
Speaker 1: you also in your coverage cover Beyond Meat that stock
30:35
Speaker 1: got downgraded by Barkley's today after the stocks down like
30:38
Speaker 1: seven percent, So thanks a lot Barkley's But um, what's
30:42
Speaker 1: the deal with that whole faux meet thing? Is that
30:44
Speaker 1: a flash in the pan? Is this a real sector
30:47
Speaker 1: within the the food industry? How do you think about
30:50
Speaker 1: it now? Well, I still think of this is there's
30:52
Speaker 1: a there's a strong long term case to be said
30:55
Speaker 1: for alternative proteins UM, but the current environment and looking
30:59
Speaker 1: over the next year to two years, is going to
31:01
Speaker 1: be a really tough environment for those players. And and
31:04
Speaker 1: really there's there's just a bunch of headwinds that they're facing.
31:07
Speaker 1: One is this the consumer UM people are trading down UM.
31:10
Speaker 1: Alternative proteins are more expensive still than conventional proteins, so UM,
31:15
Speaker 1: if people are watching their budgets, they're they're pulling back
31:18
Speaker 1: from those those alt meat products. UM. And then you
31:21
Speaker 1: have a lot of challenges because they're growth companies and
31:24
Speaker 1: so they have not yet mastered you know, how to
31:27
Speaker 1: how to build a bigger business and do things the
31:29
Speaker 1: right way with regards to manufacturing or UM lining up
31:33
Speaker 1: their innovation queue so that they do things in a
31:36
Speaker 1: smooth and uninterrupted manner. UM. So they're growing pains that
31:39
Speaker 1: are happening simultaneously with external pressures as well coming from
31:43
Speaker 1: the consumer. And Jenna know you cover the supermarkets as well,
31:46
Speaker 1: and one of the areas that consumers have seen inflation
31:48
Speaker 1: probably the most profound, uh, is the supermarket. Do prices
31:52
Speaker 1: ever go back down or I don't know, are we
31:56
Speaker 1: just gonna pay these higher levels forever? Now? They actually
31:59
Speaker 1: do come back down. And I will say, when I
32:01
Speaker 1: look across the broad scape of root scope of retail,
32:04
Speaker 1: grocery stores are some of the fastest to bring prices
32:07
Speaker 1: back down. Um. And so we will we have seen
32:11
Speaker 1: inflation starting to moderate. I think you'll start to see
32:13
Speaker 1: some prices come down in different categories in the store
32:16
Speaker 1: slowly as we get into the middle of next year. UM.
32:21
Speaker 1: But they will come down UM. Now then you know,
32:24
Speaker 1: if there are additional pressures, they could always go back
32:26
Speaker 1: up again. UM. But they tend to unlike other categories,
32:29
Speaker 1: they don't necessarily reset that bottom. They sometimes they can
32:33
Speaker 1: go back to some closer to historical norms. Um. The
32:37
Speaker 1: problem we have with food is that we were in
32:39
Speaker 1: years of deflation UM for a long time, and people
32:42
Speaker 1: got very comfortable with very low food prices, especially here
32:45
Speaker 1: in the United states um. And so that makes the
32:48
Speaker 1: inflation we've had feel even more uh, you know, even
32:52
Speaker 1: more challenging than than it might otherwise. Yeah, I think
32:58
Speaker 1: that's a good point. And you know, the was reading
33:00
Speaker 1: a few notes about not just um beyond meat but
33:04
Speaker 1: also Tyson Foods, and analysts were saying, look, it's it's
33:07
Speaker 1: the whole protein area space. Just because of the cost um,
33:11
Speaker 1: you know, investors are looking for other places. Although my
33:15
Speaker 1: initial lot was you need protein anyway to survive, you can,
33:17
Speaker 1: you can't look for something else. It's true, but people
33:20
Speaker 1: also aren't thinking about you know, for beef, it's a
33:23
Speaker 1: multi year cycle to bring a cow to market, right,
33:26
Speaker 1: and you have other factors like there's drought, um, you know,
33:29
Speaker 1: where it makes it more expensive to feed those cattle,
33:32
Speaker 1: which means that ranchers have fewer head. And when they
33:34
Speaker 1: have fewer head and they go through that, you know,
33:36
Speaker 1: eighteen months cycle, there are fewer cows, which then drives
33:39
Speaker 1: up cost and and you know, I don't know, I mean,
33:43
Speaker 1: I want they make in the same amount of chickens
33:45
Speaker 1: as they always make. I don't know. Jen Bartash is
33:47
Speaker 1: great stuff. She breaks it down for Senior Equity Research
33:49
Speaker 1: Analystic covers everything's on the retail side consumer beyond meat.
33:54
Speaker 1: We can pretty much ask her about anything and she's
33:56
Speaker 1: got some good analysis to back it up, so we
33:58
Speaker 1: appreciate getting her time. Ye thanks for listening to the
34:04
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
34:08
Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
34:12
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller three and
34:16
Speaker 1: on Fall Sweeney I'm on Twitter at pt Sweeney. Before
34:19
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg
34:22
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