Latest / Bloomberg Intelligence / When WHO Sounds The Alarm, History Shows It's Time To Dip In

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When WHO Sounds The Alarm, History Shows It's Time To Dip In · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast on Paul Swing You.
• 0:05
  Speaker 1: Along with my co host Lisa Brahmas, each day we
• 0:07
  Speaker 1: bring you the most noteworthy and useful interviews for you
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  Speaker 1: and your money, whether at the grocery store or the
• 0:12
  Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
• 0:16
  Speaker 1: or wherever you listen to podcasts, as well as that
• 0:18
  Speaker 1: Bloomberg dot com. The conundrum baked into today's markets. You're
• 0:22
  Speaker 1: seeing that sell off deepen in the face of the
• 0:24
  Speaker 1: spreading coronavirus, and yet a lot of people saying the
• 0:27
  Speaker 1: US will remain intact, will remain immune or relatively so,
• 0:31
  Speaker 1: to the deepening a health crisis across Asia. Joining us
• 0:35
  Speaker 1: now to talk about exactly how to play the US
• 0:38
  Speaker 1: market amid the increasing macroeconomics uncertainty. David Deats, president and
• 0:42
  Speaker 1: chief investment strategist at Point View Wealth Management that has
• 0:46
  Speaker 1: more than seven billion dollars under management, joining us on
• 0:49
  Speaker 1: the phone from Summit, New Jersey. I'm wondering, David, considering
• 0:52
  Speaker 1: the fact that you have studied through the eras classical literature,
• 0:56
  Speaker 1: You've studied law, You've studied a whole host of things
• 0:58
  Speaker 1: at a variety of degree easy worked with a lot
• 1:00
  Speaker 1: of different people who are trying to figure out how
• 1:03
  Speaker 1: to navigate this incredibly complicated market. What do you buy
• 1:07
  Speaker 1: on a daylight today when fear is the prevailing sentiment? Well, so,
• 1:13
  Speaker 1: I think it all goes down to your time horizon. Um. Clearly,
• 1:17
  Speaker 1: one of the big drivers today is the spread of
• 1:20
  Speaker 1: the corona virus. And the best way to figure out
• 1:24
  Speaker 1: where that may be taking us is to look at
• 1:26
  Speaker 1: these epidemics that we've had in the past, mayors, stars, hiv,
• 1:31
  Speaker 1: et cetera, over the last let's say, uh forty years,
• 1:34
  Speaker 1: and we have done that study here. And what's interesting is,
• 1:39
  Speaker 1: other than the HIV age situation the early eighties, the
• 1:43
  Speaker 1: market has invariably up significantly after the first onset of
• 1:50
  Speaker 1: these epidemics. Um. Why is that? Well, typically what happens,
• 1:56
  Speaker 1: of course, is the vaccine makers get on the bandwagon,
• 1:59
  Speaker 1: and we've seen the stocks and some of these vaccine
• 2:01
  Speaker 1: makers double and even triple because there is an opportunity here. Um.
• 2:06
  Speaker 1: And and typically the tipping point is when the World
• 2:10
  Speaker 1: Health Organization declares an emergency, because at that point is
• 2:14
  Speaker 1: fully discounted in the market. Now we could be wrong here,
• 2:18
  Speaker 1: but UM, and certainly that's this is not advice to
• 2:21
  Speaker 1: day trade it today or even next week or even
• 2:24
  Speaker 1: in February. But if you have a longer term horizon,
• 2:27
  Speaker 1: there are some discounts for something that I don't think
• 2:30
  Speaker 1: it's going to go on forever here. So, David, some
• 2:32
  Speaker 1: folks are looking for value in this market. One of
• 2:35
  Speaker 1: the places they look for is the energy space. We
• 2:38
  Speaker 1: have some disappointing numbers out of Exxon and Chevron today.
• 2:40
  Speaker 1: What's your view of the energy space? Well, so, UM,
• 2:46
  Speaker 1: you know, I think most of the experts say that
• 2:49
  Speaker 1: we are undergoing a shift at transition to cleaner fuels
• 2:54
  Speaker 1: and renewable energy and so forth. But most of the
• 2:57
  Speaker 1: experts say that's going to take decade to UM come
• 3:01
  Speaker 1: into fruition. What we've seen recently energy prices back in
• 3:06
  Speaker 1: two thousand and fourteen where hundreds of barrel, now they're
• 3:09
  Speaker 1: coming down to about fifty UM. The best cure, quite frankly,
• 3:12
  Speaker 1: for low commodity prices is low commodity prices, because who
• 3:16
  Speaker 1: in the right mind would explore for further fuel UM
• 3:20
  Speaker 1: given where the situation is. So, if you're a believer
• 3:23
  Speaker 1: that things are cyclical and that sometimes a tough environment
• 3:27
  Speaker 1: for an industry actually favors the biggest players on the
• 3:31
  Speaker 1: block because they have can attract the best people, they
• 3:33
  Speaker 1: have the lowest borrowing costs, most diversified operations. Then maybe
• 3:37
  Speaker 1: this is the time to dip your toe into the
• 3:41
  Speaker 1: water of some of the biggest players who which you
• 3:43
  Speaker 1: have outstanding track records in our integrated across all phases
• 3:47
  Speaker 1: of the industry, plus geographically well diversified. David, I know
• 3:50
  Speaker 1: that one of your stock picks is Exxon, which would
• 3:52
  Speaker 1: fall into that category. And I'm looking right now at
• 3:54
  Speaker 1: Xson shares that are really underperformed. But at this point,
• 3:58
  Speaker 1: and this Dave Wilson are Brick Socks editor pointed out
• 4:01
  Speaker 1: that the dividend yield being paid out on Exxon shares
• 4:05
  Speaker 1: now exceeds what you can get on US junk bonds.
• 4:09
  Speaker 1: How much of this is a dividend play and how
• 4:11
  Speaker 1: much is this an appreciation play? Well, I think it
• 4:15
  Speaker 1: ultimately could be both, because obviously there are players in
• 4:19
  Speaker 1: the market they're saying this dividend won't grow. In fact,
• 4:22
  Speaker 1: it might be uh cut um. But I think that
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  Speaker 1: historically buying some of the biggest dividend players in the
• 4:30
  Speaker 1: Dow has worked out well, that would be the dogs
• 4:32
  Speaker 1: of the Dow theory. Plus, of course, we do know
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  Speaker 1: that Exxon is an industry giant, I think third largest
• 4:38
  Speaker 1: revenues in the sp so you know there's a lot
• 4:42
  Speaker 1: of way ways for them to cut costs. They announced
• 4:44
  Speaker 1: earnings this morning, this stock is down significantly. Nevertheless, they
• 4:49
  Speaker 1: did beat expectations in terms of the top line, and
• 4:52
  Speaker 1: the bottom line relates to what animals were projecting. So again,
• 4:57
  Speaker 1: the other thing, of course, is is it an exon
• 4:59
  Speaker 1: specific problems in an industry problem where we've given that
• 5:03
  Speaker 1: energy prices down this month alone, I think you'd give
• 5:06
  Speaker 1: a pass to x on management and look at global
• 5:09
  Speaker 1: macro economic conditions. David, thanks so much for joining us.
• 5:12
  Speaker 1: We appreciate you stepping on the phone with us and
• 5:15
  Speaker 1: give us your thoughts on the market. Here David Deet's
• 5:17
  Speaker 1: president and chief investment strategists at Point View Wealth Management,
• 5:21
  Speaker 1: calling on the phone from Lovely Downtown Summit, New Jersey.
• 5:24
  Speaker 1: We appreciate a s thoughts. Looking at the SMP right here,
• 5:26
  Speaker 1: hitting the lows of the day down forty nine points.
• 5:29
  Speaker 1: I'll be one point five percent on the SMP that
• 5:31
  Speaker 1: down down fourner and sixty six points, that's one point
• 5:34
  Speaker 1: six percent decline and NASDAC down a hundred twenty two
• 5:37
  Speaker 1: points one point three percent decline. So seeing some accelerating
• 5:41
  Speaker 1: selling here as we close up the morning, David dates
• 5:43
  Speaker 1: with some kind of a non consensus view here that
• 5:46
  Speaker 1: with the w h o uh sounds the alarm, that's
• 5:49
  Speaker 1: usually the trough for that's usually when you can start
• 5:51
  Speaker 1: thinking about getting back in. Not what other people are saying.
• 5:54
  Speaker 1: They're looking for some sort of halt in this exponential
• 5:57
  Speaker 1: expansion of the coronavirus, which we really haven't seen it.
• 6:03
  Speaker 1: Boil has been falling out of bed steadily as the
• 6:06
  Speaker 1: coronavirus spreads throughout Asia and frankly throughout the world. Right now,
• 6:11
  Speaker 1: looking at Crew traded on the night mix, trading at
• 6:13
  Speaker 1: fifty since a barrel, the lowest in August two nineteen,
• 6:19
  Speaker 1: what will it take for the prices to rise and
• 6:21
  Speaker 1: for the fate of some of the weaker oil companies
• 6:24
  Speaker 1: to improve? Joining us now, Regina may Our Global Energy
• 6:27
  Speaker 1: had at KPMG Regina, can you just give us a
• 6:29
  Speaker 1: first your your broad sense of the main driver behind
• 6:33
  Speaker 1: the latest weakness in oil. So I think we're experiencing
• 6:37
  Speaker 1: a really significant demand destruction event that's had a major impact,
• 6:42
  Speaker 1: not just what you said. That's the lowest point since August.
• 6:45
  Speaker 1: It's down almost twelve dollars from January six. The coronavirus
• 6:50
  Speaker 1: was announced on January and we've seen almost half of
• 6:54
  Speaker 1: that destruction since the virus was announced. So I think
• 6:58
  Speaker 1: this is going to be very significant, and it's only escalating.
• 7:01
  Speaker 1: So I think it's going to get worse before it
• 7:03
  Speaker 1: even stabilizes, because we're going to see even more consumer
• 7:07
  Speaker 1: and business activity both inside of China and inbound into
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  Speaker 1: China that all continue to have destructive effects on oil demand. So, Regina,
• 7:15
  Speaker 1: when you talk to your clients, your energy clients, how
• 7:19
  Speaker 1: are they kind of thinking about this as you again
• 7:21
  Speaker 1: as you talked about demand from a demand equation? Are
• 7:24
  Speaker 1: they taking this seriously, very seriously? But you know they're
• 7:30
  Speaker 1: in it for the long term, so they can't overreact
• 7:33
  Speaker 1: to these these uh, these weaker signals right now. We
• 7:38
  Speaker 1: have seen in corporate results though that downstreaming chemicals earnings
• 7:41
  Speaker 1: are significantly down and for Q one will have an
• 7:44
  Speaker 1: even bigger impact. Those that have extensive ties to Asia
• 7:48
  Speaker 1: will see even more demand destruction. Or or revenue decreases
• 7:52
  Speaker 1: from what's happening in Asia. So definitely taking it seriously,
• 7:56
  Speaker 1: but can't change their strategy given the long term nture
• 8:00
  Speaker 1: of the overall process. So, given your incredible experience talking
• 8:04
  Speaker 1: with companies of all sizes within the energy sector for
• 8:07
  Speaker 1: decades and trying to figure out the next part of
• 8:11
  Speaker 1: disruption and sort of how to get ahead of that,
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  Speaker 1: what's your main conversation today with some of these corporate executives. Well,
• 8:18
  Speaker 1: this one, I would say, Lesa is a bit of
• 8:19
  Speaker 1: a black swan. I mean, I don't think that. I
• 8:22
  Speaker 1: think we were experiencing almost a mini renaissance in Houston
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  Speaker 1: for Q four when we saw independent producer stock prices
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  Speaker 1: go up um, and I think because the industry and
• 8:34
  Speaker 1: the investor community felt like Number one, they were quite
• 8:36
  Speaker 1: a good bargain. Number two, we felt like we'd reached
• 8:39
  Speaker 1: a bit of a floor and commodity price right was
• 8:42
  Speaker 1: w T I and the mid to high fifties and
• 8:45
  Speaker 1: Brent in the mid sixties. And now look at where
• 8:47
  Speaker 1: we are, literally three weeks after the January six high
• 8:51
  Speaker 1: that we experienced. So I think it's um, this one
• 8:56
  Speaker 1: wasn't foreseen, And I think We're going to have to
• 8:59
  Speaker 1: figure out out what that is going to mean. Capital
• 9:02
  Speaker 1: spending levels we're going up. You'll have seen permian production
• 9:05
  Speaker 1: surged from some of the announcements that are coming out
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  Speaker 1: this weekend next and that excitement I think will die
• 9:11
  Speaker 1: down given given what's happening, and it's a crisis for
• 9:14
  Speaker 1: you know, overall the markets as well as the oil
• 9:17
  Speaker 1: industry Regina. You raise a really interesting question implicit in
• 9:20
  Speaker 1: your in your statement that this is a black swan,
• 9:23
  Speaker 1: how resilient are the weakest players in the energy space
• 9:27
  Speaker 1: to something like this black swan? In other words, are
• 9:30
  Speaker 1: we going to see a rash of bankruptcies that are
• 9:32
  Speaker 1: accelerated as a result of this. I think you're right.
• 9:35
  Speaker 1: I don't think they're incredibly resilient, particularly the players that
• 9:39
  Speaker 1: were hanging on by their fingernails. We've seen the smaller
• 9:43
  Speaker 1: players are already being very challenged, and I do think
• 9:48
  Speaker 1: we'll see more bankruptcies, restructuring calls on debt for the
• 9:53
  Speaker 1: for the much much smaller marginal players. You've seen the
• 9:56
  Speaker 1: larger players make pretty big announcements on significant write downs
• 10:00
  Speaker 1: with gas positions. So if you're an investor and you're
• 10:03
  Speaker 1: looking at the sector and you see a small player
• 10:06
  Speaker 1: that's predominantly gas portfolio that would not be where I
• 10:09
  Speaker 1: would place the pet in this market. So, Regina, that
• 10:12
  Speaker 1: kind of calls into question, do you think we'll see
• 10:15
  Speaker 1: some more consolidation in the oil patch? Um? You know
• 10:18
  Speaker 1: a lot of your you have big clients, medium sized,
• 10:21
  Speaker 1: smaller clients. Is the expectation that if it gets even
• 10:24
  Speaker 1: tougher in the oil patch, that maybe some of the
• 10:26
  Speaker 1: bigger companies will look to scoop up some of the
• 10:29
  Speaker 1: weaker ones, the ones that maybe have a challenging capital structure.
• 10:33
  Speaker 1: I believe. So, I do think there are going to
• 10:36
  Speaker 1: be some bargains available. There are larger players the same
• 10:40
  Speaker 1: midsize players that have really nice acreage portfolios UH and
• 10:44
  Speaker 1: decent assets that are not operating as effectively as they
• 10:48
  Speaker 1: can be. The market, the overall sector would be so
• 10:52
  Speaker 1: much more improved if we could consolidate like a big
• 10:55
  Speaker 1: one that we saw last year, and I think the
• 10:57
  Speaker 1: market would benefit, The sector would benefit. Whether or not
• 11:01
  Speaker 1: the bid ask spreads UM come together. That's been the
• 11:04
  Speaker 1: big that's been the big hurdle. But if we were
• 11:06
  Speaker 1: faced with bankruptcy and restructuring, then you don't have the
• 11:10
  Speaker 1: sellers being in such a strong position to try to
• 11:12
  Speaker 1: demand a higher price. Regina, what would it take when
• 11:15
  Speaker 1: it comes to the spread of the coronavirus for oil
• 11:18
  Speaker 1: prices to get a bottom or get a sense of
• 11:20
  Speaker 1: the potential economic fallout. We have to be at a
• 11:25
  Speaker 1: stage where we believe we've reached the tipping point. Right now,
• 11:28
  Speaker 1: it feels like an exponential upward curve with cases and
• 11:32
  Speaker 1: spread and fear until we feel like the world and
• 11:37
  Speaker 1: China has got its arms around the virus is stemming
• 11:40
  Speaker 1: the tide. People are going back to work, people are
• 11:43
  Speaker 1: flying in and out again. That's when we'll see the
• 11:46
  Speaker 1: floor and have it stabilized. That doesn't feel like it's
• 11:49
  Speaker 1: close right now to me, but obviously I'm speculating, so
• 11:53
  Speaker 1: I think that's what's causing a lot more of the
• 11:55
  Speaker 1: fear is we don't know when that tipping point it
• 11:58
  Speaker 1: would be achieved. You thank you so much for joining us.
• 12:01
  Speaker 1: We really appreciate your commentary. Regina Mayor, Global Energy head
• 12:04
  Speaker 1: for KPMG. And everyone's talking about the coronavirus and the
• 12:11
  Speaker 1: risk off field that we're having in markets today in
• 12:13
  Speaker 1: the US. But I want to go to another place,
• 12:15
  Speaker 1: which is Amazon and the incredible surge that we've seen there.
• 12:19
  Speaker 1: Apple's earnings came out, incredible earnings, even though the shares
• 12:21
  Speaker 1: are down today a little bit on the coronavirus, leaving
• 12:24
  Speaker 1: a question that Tom Keene raised this morning. I thought
• 12:26
  Speaker 1: it was really salient, which is an investor who has
• 12:29
  Speaker 1: been underweight some of these big tech names, what do
• 12:32
  Speaker 1: they do now given the fact that you're getting earnings
• 12:34
  Speaker 1: that beat so dramatically. And Chris Christopher Wolf joins US
• 12:38
  Speaker 1: now chief investment Officer at First Republic Private Wealth Management
• 12:41
  Speaker 1: with seventy four billion dollars of assets under management, normally
• 12:44
  Speaker 1: based in San Francisco, but here with us in our
• 12:45
  Speaker 1: interactive broker studios. And we'll get to the coronavirus issues,
• 12:49
  Speaker 1: and we'll get to macro concerns. But when it comes
• 12:52
  Speaker 1: to big tech, which has been really the driving force
• 12:54
  Speaker 1: of a lot of the gains in the SMP and
• 12:56
  Speaker 1: NASDAC over the past decade, where do people go now
• 13:00
  Speaker 1: when they see that these earnings just keep coming. So
• 13:03
  Speaker 1: I think there's three things. I do think you have
• 13:05
  Speaker 1: to go there, meaning towards the technology space for a
• 13:07
  Speaker 1: couple of reasons, one, we're in an age of hyper aggregation.
• 13:11
  Speaker 1: Technology enables that kind of the reach that the Internet has, etcetera.
• 13:14
  Speaker 1: You can buy I think anything you want almost on
• 13:16
  Speaker 1: Amazon at this point. I mean you're basically stealing share.
• 13:19
  Speaker 1: And that hyper aggregation function, driven by instantaneous everywhere communication,
• 13:24
  Speaker 1: is one key piece of what technology provides and kind
• 13:26
  Speaker 1: of why it's very hard to stop. Number two, you're
• 13:30
  Speaker 1: in an era where kind of the public markets have
• 13:32
  Speaker 1: been increasingly dominated by machines machine trading. They kind of
• 13:35
  Speaker 1: simply follow rules. I'm greatly simplifying it, but if it
• 13:38
  Speaker 1: was up yesterday or earnings beat or whatever, just by
• 13:41
  Speaker 1: and I think you get that kind of rule following mentality,
• 13:43
  Speaker 1: particularly is the market is starting to separate by signals
• 13:46
  Speaker 1: with this sectors, with this big external influence called coronavirus,
• 13:49
  Speaker 1: which I hope we get to. I think the last
• 13:51
  Speaker 1: piece of the puzzle. I just want to throw a
• 13:54
  Speaker 1: curveball because it's a question. It's on my mind, so
• 13:56
  Speaker 1: I think you gotta go there. Anyway. Last piece of
• 13:58
  Speaker 1: puzzle on the tech side is that it is the
• 13:59
  Speaker 1: one place where there is growth. The thing that's scarce
• 14:01
  Speaker 1: in this world is growth. So there's an old maximum
• 14:04
  Speaker 1: in the equities and kind of more broadly markets as
• 14:06
  Speaker 1: you buy what scarce growth is the scarce thing. There's
• 14:08
  Speaker 1: a lot of cheap stuff as we can see, and
• 14:10
  Speaker 1: energy and other parts of the market, but it's really
• 14:13
  Speaker 1: hard to find true growth these days. And it's still
• 14:15
  Speaker 1: in tech all right. So we're seeing a so often
• 14:18
  Speaker 1: the SMP of a little more than one percent today,
• 14:21
  Speaker 1: the Dow off one point three today, presumably on growing
• 14:25
  Speaker 1: concerns about the coronavirus. Even given the today's so off,
• 14:30
  Speaker 1: are you concerned at all that the markets maybe been
• 14:32
  Speaker 1: a little too sanguine about the potential risk to economic
• 14:36
  Speaker 1: growth coming from this virus coming out of China. I
• 14:40
  Speaker 1: think the level of uncertainty around the policy response. So
• 14:42
  Speaker 1: we've seen some of it, so water closings, for example,
• 14:45
  Speaker 1: shutdown of flights. You've just seen some recent announcements about
• 14:48
  Speaker 1: the airlines in the US cutting the flights. You know,
• 14:51
  Speaker 1: the challenge error is two fold. It's not just the
• 14:53
  Speaker 1: people traveling, it's the goods that move in the bellies
• 14:55
  Speaker 1: of the plans, for example, and including when they're talking
• 14:58
  Speaker 1: about shutting ports, moving lots of goods back and forth.
• 15:00
  Speaker 1: So we haven't seen a lot of that just yet. Um,
• 15:03
  Speaker 1: there's some good data, or at least some data historically
• 15:05
  Speaker 1: that suggests that markets kind of tumble until we see
• 15:08
  Speaker 1: a peak in the number of cases and the policy
• 15:10
  Speaker 1: response gets really strong. At that point, there's some confidence
• 15:14
  Speaker 1: that this is under control or in contained in some way.
• 15:17
  Speaker 1: And I don't mean to be glib, but that's how
• 15:19
  Speaker 1: financial markets tend to respond to things. So am I worried,
• 15:22
  Speaker 1: not just yet. Number one, Yes, economy is a giant place.
• 15:25
  Speaker 1: It's really hard to damage the battleship. Number two, we're
• 15:27
  Speaker 1: pretty closed, you know, more or less we trade with ourselves.
• 15:30
  Speaker 1: Only about six percent seven percent GDP is net basis
• 15:33
  Speaker 1: at export import, and I'm greatly simplifying the numbers. I think.
• 15:37
  Speaker 1: Number three, you know, we're in a place where, um,
• 15:39
  Speaker 1: this has started in China, and some immediate actions have
• 15:42
  Speaker 1: taken place. The World Health Organization actually praised China's efforts
• 15:46
  Speaker 1: immediately and in some ways, uh, that may help limit
• 15:48
  Speaker 1: the spread. So I think the overreaction here. Now back
• 15:51
  Speaker 1: to my point and I'll stop on this has something
• 15:54
  Speaker 1: to do with the machines. Things have been down a
• 15:56
  Speaker 1: couple of days. You have an outside event a coronavirus,
• 15:58
  Speaker 1: and hey, if it's down yester day, why not sell today?
• 16:01
  Speaker 1: All right? Blame the machines that said I got to start.
• 16:04
  Speaker 1: There's other things, but but you could say, you know,
• 16:06
  Speaker 1: that's that's sort of what's driving the action here. If
• 16:09
  Speaker 1: your thesis is right, though, and the US is an
• 16:12
  Speaker 1: economy that can keep chugging along and is relatively immune
• 16:15
  Speaker 1: to the scare that's weakening growth and expected to continue
• 16:17
  Speaker 1: to weaken grow throughout Asia and beyond. Why is the
• 16:20
  Speaker 1: Russell two thousand underperforming large caps? Why are we seeing
• 16:23
  Speaker 1: a loss of two point four percent on the companies
• 16:26
  Speaker 1: that are most leveraged to the U S economy while
• 16:28
  Speaker 1: large multinational companies are outperforming. So I think there's two
• 16:32
  Speaker 1: reasons for that. Um And and look, there's remains to
• 16:35
  Speaker 1: be seen a lot about the coronavirus, and it's spread
• 16:37
  Speaker 1: is not understood yet, and if it follows other patterns,
• 16:40
  Speaker 1: it is coming here in the U S. And we
• 16:42
  Speaker 1: do have to be thoughtful about it. But at least
• 16:44
  Speaker 1: with respect to markets, two things matter a lot. One liquidity.
• 16:46
  Speaker 1: There's a lot more in the big stocks than there
• 16:48
  Speaker 1: isn't a little stocks. Um And to the financial position
• 16:51
  Speaker 1: of many of these companies. So if you watch a
• 16:53
  Speaker 1: lot of the data on the Russell two thousand, you
• 16:55
  Speaker 1: know that the debt to eb DOT numbers are out
• 16:57
  Speaker 1: of control. The debt burden and small company these days
• 17:00
  Speaker 1: is four times what it is in the large companies. Financially,
• 17:04
  Speaker 1: they are way more susceptible to just tiny changes in
• 17:06
  Speaker 1: the revenue line. So even if we get you know,
• 17:10
  Speaker 1: small effects in the US, they could be exaggerated by
• 17:12
  Speaker 1: how much leverage is into the small cap space these days.
• 17:15
  Speaker 1: So if I were thinking about the fundamentals and wanted quality,
• 17:18
  Speaker 1: I'd want a better balance sheet, I'd want some way
• 17:20
  Speaker 1: to manage um kind of subsidize the cost associated with
• 17:23
  Speaker 1: all this. And I wouldn't want to have all that
• 17:25
  Speaker 1: leverage if there were some risk to my top line.
• 17:28
  Speaker 1: So I think that can tie back to why there's
• 17:30
  Speaker 1: another performance. So what are your clients saying to you
• 17:33
  Speaker 1: right now? Are they bringing up the coronavirus and what
• 17:35
  Speaker 1: it means for global economic growth? Are they just saying,
• 17:39
  Speaker 1: you know, I need to I need to be in
• 17:40
  Speaker 1: this market. You know, we published a piece earlier this
• 17:43
  Speaker 1: week and it's kind of tied to something we wrote
• 17:45
  Speaker 1: the end of two thousand eighteen and carried through two
• 17:48
  Speaker 1: thousand nineteen. It didn't look all that great because two
• 17:50
  Speaker 1: thousand nineteen was up so much, but it said we're
• 17:52
  Speaker 1: entering an era where it's time, given kind of all
• 17:55
  Speaker 1: the dynamics that we've just talked about, to be more
• 17:57
  Speaker 1: thoughtful about managing risk, diversify the portfolio is more, we're
• 18:00
  Speaker 1: comfortable hold a little bit more cash um And what
• 18:03
  Speaker 1: we tried to key off on our recent piece for
• 18:05
  Speaker 1: this coronavirus is there's a lot of unknowns at this point.
• 18:08
  Speaker 1: There may be a treating dip that we get out
• 18:09
  Speaker 1: of this, but I think our view is that there's
• 18:12
  Speaker 1: a lot of things related to the growth story that
• 18:14
  Speaker 1: not only could coronavirus hit, but other things could hit
• 18:17
  Speaker 1: that we want to be a little bit more cautious
• 18:18
  Speaker 1: in this low, slow, central bank free money dominated world.
• 18:22
  Speaker 1: What's your time frame of for investments? Typically we look
• 18:25
  Speaker 1: at a minimum of two years. We're not really a
• 18:26
  Speaker 1: trading house, you know. Most private clients, that's the folks
• 18:29
  Speaker 1: that we manage money for, look over a longer time frame,
• 18:32
  Speaker 1: although they are sensitive to the news of the day.
• 18:34
  Speaker 1: All right, So if it's a two year time horizon,
• 18:36
  Speaker 1: When does the coronavirus disruption end up becoming a trading
• 18:40
  Speaker 1: opportunity on some level with that longer term horizon in mind.
• 18:44
  Speaker 1: So I really hate to refer to old maximums, but
• 18:47
  Speaker 1: sometimes they're very valuable to anchor the context. And um
• 18:50
  Speaker 1: market stop panicking when policymakers start panicking is one that
• 18:54
  Speaker 1: kind of goes around. And I don't know that we've
• 18:56
  Speaker 1: seen full blown policy panic, like shut everything down, getting mad.
• 19:01
  Speaker 1: I think you're gonna go right back to the places
• 19:03
  Speaker 1: that are scarce, So you're gonna go right back to
• 19:05
  Speaker 1: the technology, right back to the growth stories that I've
• 19:07
  Speaker 1: come under pressure with this, And I think you know,
• 19:09
  Speaker 1: tech is actually held up pretty well here today. If
• 19:11
  Speaker 1: you look at the numbers, the growth stories that were
• 19:14
  Speaker 1: requiring China, Japan and basically Asia to grow strongly are
• 19:18
  Speaker 1: all under the most arrest. They probably have the most
• 19:20
  Speaker 1: rebound potential all the longer term. I don't think we're
• 19:23
  Speaker 1: as as positive on the hyper aggregation stories, I mean
• 19:26
  Speaker 1: on those as we are in hyper aggregation. Christopher Wolf,
• 19:28
  Speaker 1: thank you so much for joining us to really appreciate
• 19:30
  Speaker 1: your commentary. Christ Wolf is chief Investment officer for First
• 19:34
  Speaker 1: Republic Private Wealth Management based in San Francisco, but joining
• 19:37
  Speaker 1: us here in our Bloomberg Interactive Broker Studio, would mention
• 19:40
  Speaker 1: to seek, I mean we're off, you know, more than
• 19:42
  Speaker 1: one percent here on the SMP. Is this a buy
• 19:44
  Speaker 1: on the dip? Again, Lisa, this isn't a dip, Okay,
• 19:47
  Speaker 1: I mean this is not this is not this is
• 19:49
  Speaker 1: not a dip. This is this is this is normal
• 19:51
  Speaker 1: market action, right. I mean this is not, uh, something
• 19:54
  Speaker 1: where you can look at it and say, wow, this
• 19:56
  Speaker 1: is just absolute fear. I mean the doubt you're seeing
• 19:59
  Speaker 1: more of declare line and the SMP. Sure it's down
• 20:01
  Speaker 1: more than so we'll bring that up with Da Wilson coming.
• 20:04
  Speaker 1: You better believe we're gonna bring up with no But
• 20:06
  Speaker 1: but to me it raises it raises a really interesting
• 20:09
  Speaker 1: question I think Tom Keene raises this morning, and I
• 20:11
  Speaker 1: thought it was really important, which is how money, how
• 20:14
  Speaker 1: much of the gains are gone right, and how much
• 20:16
  Speaker 1: can you sort of believe in the growth stories if
• 20:18
  Speaker 1: the global growth isn't going to happen. And I think
• 20:20
  Speaker 1: that that's sort of a bigger question that remains to
• 20:22
  Speaker 1: be seen as the coronavirus plays itself out and people
• 20:25
  Speaker 1: look at the fundamentals. My other favorite person always speak
• 20:30
  Speaker 1: with his Karen Eveil Heart, and she joins us here
• 20:32
  Speaker 1: in our interactive Broger Studios, a senior industrials analysts, love
• 20:36
  Speaker 1: having her perspective with respect to Caterpillar, in particular coming
• 20:41
  Speaker 1: out today with weaker than expected projections that shares now
• 20:45
  Speaker 1: down nine point two per cent on the year, including
• 20:48
  Speaker 1: reinvested dividends. Karen, how much of the weakness that they
• 20:52
  Speaker 1: are for telling has to do with the coronavirus versus
• 20:55
  Speaker 1: just a general slowdown that we're seeing in the industrial
• 20:57
  Speaker 1: sector that continues. I think was just another shoe. Um
• 21:02
  Speaker 1: Cat has about three to sales in China, so that
• 21:06
  Speaker 1: will that's actually doing okay now, but they're they're concerned
• 21:08
  Speaker 1: about that. Uh, it's just global growth is slow everywhere
• 21:12
  Speaker 1: and it's not coming back. And I think it's really
• 21:15
  Speaker 1: interesting a that they came out so below consensus in
• 21:19
  Speaker 1: EPs outlook, and also the range is so wide they
• 21:22
  Speaker 1: don't know. They said it's reflecting uncertainty. They had a
• 21:25
  Speaker 1: hundred dollar fifty range from top end to low end
• 21:28
  Speaker 1: of of estimate, and that's really that's wide. So they
• 21:31
  Speaker 1: got exposure to the energy businesses, right, So how's that
• 21:34
  Speaker 1: that's got to be challenged? Um, well, their energy and
• 21:36
  Speaker 1: t businesses, Energy and transportation, the piece of it that
• 21:40
  Speaker 1: is oil service is doing poorly, but they have other
• 21:42
  Speaker 1: stuff that's downstream and midstream that's holding up okay, And
• 21:45
  Speaker 1: and the transportation business is okay, So that's only moderately down.
• 21:49
  Speaker 1: Mining is falling apart because industrial commodities and that had
• 21:53
  Speaker 1: had a mini recovery and now that's backed down. And
• 21:55
  Speaker 1: construction is the incremental worst there, the North American construction,
• 21:59
  Speaker 1: they're much more worth were concerned about. I want to
• 22:02
  Speaker 1: pick up on that though, And this is sort of
• 22:04
  Speaker 1: one of the fundamental questions that I think a lot
• 22:05
  Speaker 1: of people will be passing through. How much the weakness
• 22:07
  Speaker 1: that we're seeing, particularly in industrials and I'm looking at industrials,
• 22:10
  Speaker 1: medals absolutely getting pummeled over on the London Medals Exchange.
• 22:15
  Speaker 1: How much of this is due to the coronavirus. How
• 22:17
  Speaker 1: much is due to what we've seen, which is just
• 22:19
  Speaker 1: a broader slowdown, particularly with this with this sector, I think,
• 22:22
  Speaker 1: but happening at least this week. I think there is
• 22:25
  Speaker 1: panic about the virus. I mean, because if you sit back,
• 22:27
  Speaker 1: you can get yourself pretty worked up. I mean, if
• 22:29
  Speaker 1: China stops production just because that people can't go to
• 22:32
  Speaker 1: the plant, that could be a big number for a
• 22:34
  Speaker 1: lot of these a lot of these companies, I mean
• 22:36
  Speaker 1: the ext I mean, and and then they're all lowering expectations.
• 22:39
  Speaker 1: Honeywell did very wide range on their EPs two. They
• 22:42
  Speaker 1: never do that. People are concerned about. That's like the
• 22:45
  Speaker 1: incremental thing that they can't put their arms around yet,
• 22:48
  Speaker 1: So they got to make a big wide range. How
• 22:50
  Speaker 1: about trade? We got the Phase one deal. Are the
• 22:54
  Speaker 1: c e O s and that you talked to in
• 22:56
  Speaker 1: Industrial America are they still saying this is still an
• 22:58
  Speaker 1: issue for us? Yeah? I mean they I don't think
• 23:00
  Speaker 1: they make much of that. They're happy that it's a
• 23:03
  Speaker 1: step forward, that it's not really going to change the
• 23:06
  Speaker 1: trend line in any big way. Um, and I think
• 23:09
  Speaker 1: they're more concerned about the just the global growth outlook.
• 23:13
  Speaker 1: Any bright spots, uh Well, aviation was the bright spot
• 23:17
  Speaker 1: and now and you know we had Max Okay, nobody
• 23:21
  Speaker 1: people weren't completely worried about that because that's going to
• 23:23
  Speaker 1: come back. But now you've got the virus, you know,
• 23:26
  Speaker 1: and honey Well said they're already seeing it in aftermarket
• 23:28
  Speaker 1: parts that, um, the volume of travel is slowing, and
• 23:32
  Speaker 1: that's how they make money. That's how they make money. UM,
• 23:35
  Speaker 1: airline airline traffic slows, they sell as parts. You know.
• 23:38
  Speaker 1: It's so interesting. Paul I was looking at how Chinese
• 23:41
  Speaker 1: travelers really account for such a huge proportion of overall travel,
• 23:46
  Speaker 1: of overhaul luxury spending, and just how much of a
• 23:49
  Speaker 1: disproportionate hit to these sectors. Uh, there has been because
• 23:53
  Speaker 1: of what's been going on. Just dramatic. Yeah, I mean
• 23:55
  Speaker 1: they move the needle on everything and you know, just
• 23:59
  Speaker 1: you know, incremental. A few stay home and but it's
• 24:01
  Speaker 1: the flights are already slowing so dramatically that you know.
• 24:04
  Speaker 1: The good news about the max slowing was, oh, we
• 24:06
  Speaker 1: we're flying older plains. That's good for parts right. Well
• 24:09
  Speaker 1: now if that one's gone, so the bright spot is hard.
• 24:12
  Speaker 1: Here's the bright spot there. They're they're managed, managing, they're
• 24:17
  Speaker 1: executing very well, like like you know, in a very
• 24:20
  Speaker 1: bad situation, cats in decremental margins were very good. Um,
• 24:24
  Speaker 1: you know, cut back on the expense and they have
• 24:27
  Speaker 1: and they didn't bring the costs back and they have
• 24:29
  Speaker 1: more flexible cost structures. That's the good news. How's how's
• 24:32
  Speaker 1: the American farmer doing? Uh? Not not well at all, um,
• 24:36
  Speaker 1: But they're gonna China. One thing China is going to do,
• 24:38
  Speaker 1: when they can do it rather quickly, is buy more soybeans.
• 24:40
  Speaker 1: So it'll go from a bad, bad situation to just
• 24:42
  Speaker 1: a crappy situation. But it's not term okay. Karen Uberhart,
• 24:48
  Speaker 1: thanks so much for joining us. We always like chatting
• 24:50
  Speaker 1: with you to get a sense of what's going on
• 24:52
  Speaker 1: in industrial America. Karen's the senior Industrials analyst for Bloomberg Intelligence,
• 24:57
  Speaker 1: joining us here in our Bloomberg Interactive Broker Studio. Disappointing
• 25:00
  Speaker 1: numbers again out of Caterpillar today. The stock down one
• 25:03
  Speaker 1: point five percent today and is Lisa mentioned that about
• 25:06
  Speaker 1: nine point eight percent for the year up just slate
• 25:09
  Speaker 1: if you look at it on a trailing twelve months
• 25:11
  Speaker 1: up about three percent, really trailing the market. Here's concerns
• 25:15
  Speaker 1: about end user demand and the company was forecasting in
• 25:18
  Speaker 1: their press released end user demands seen to be down
• 25:21
  Speaker 1: four to nine percent this year for Caterpillar. So that
• 25:24
  Speaker 1: gives you a sense of some of the demand or
• 25:27
  Speaker 1: the lack of demand from industrials across the world, and
• 25:31
  Speaker 1: that is clearly a global company is Caterpillar. Thanks for
• 25:35
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 25:38
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
• 25:41
  Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
• 25:44
  Speaker 1: pt Sweeney. I'm Lisa abramoy It's I'm on Twitter at
• 25:46
  Speaker 1: Lisa A. Bram woyds one. Before the podcast, you can
• 25:49
  Speaker 1: always catch us worldwide on Bloomberg Radio.