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P&L: Be Skeptical of Eco Sentiment Data Before U.S. Election · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:14
  Speaker 1: you and your money, whether you're at the grocery store
• 0:16
  Speaker 1: or the trading floor. Find the Bloomberg P L Podcast
• 0:20
  Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. All right, now,
• 0:30
  Speaker 1: someone that's going to make a smarter about the US
• 0:32
  Speaker 1: economy is Elena Shueteva, senior US economist to for Bloomberg Intelligence.
• 0:38
  Speaker 1: And well, okay, you can. It's always great to have you, Elena.
• 0:42
  Speaker 1: You know you're you're a little self deprecating yours. Yes,
• 0:45
  Speaker 1: so let's talk about what it sounds like. You're not leaving,
• 0:48
  Speaker 1: are you alright? Because all right, tell me what happened.
• 0:50
  Speaker 1: GDP two point nine print estimate was for two point
• 0:54
  Speaker 1: five big deal. Oh, these numbers are very encouraging in
• 0:59
  Speaker 1: a sense that they do a highlight that growth has
• 1:03
  Speaker 1: rebounded in the second half of the year. So in
• 1:06
  Speaker 1: that respect, it's it's very positive, but as always, you
• 1:09
  Speaker 1: need to look at the details, and the details to
• 1:13
  Speaker 1: us seem to be a little bit less encouraging. Although, um,
• 1:18
  Speaker 1: you know, the bottom line from the report, let me
• 1:20
  Speaker 1: just say that is that will provide comfort for the
• 1:24
  Speaker 1: FIT to raise rates in December, but the underlying details
• 1:28
  Speaker 1: might not necessarily mean that they will continue at a
• 1:33
  Speaker 1: very rapid pace in the next year, So they might
• 1:37
  Speaker 1: have to continue only on a gradual pace next year.
• 1:42
  Speaker 1: The channet yell and send you an email. I mean
• 1:44
  Speaker 1: that sounds earlier this year, right, we were talking about December. Correct, Well,
• 1:50
  Speaker 1: let's let's take into some of those details that are
• 1:53
  Speaker 1: giving people comfort that the federal move for not too quickly.
• 1:56
  Speaker 1: What are you looking at? So the details of the
• 1:59
  Speaker 1: reports showed considerable deceleration in consumer spending, which could be discouraging,
• 2:05
  Speaker 1: could be encouraging. So it is discouraging because this is
• 2:08
  Speaker 1: the biggest part of the economy and that is slowing
• 2:11
  Speaker 1: down considerably. On the other hand, that means less dependence
• 2:15
  Speaker 1: on consumer spending alone and some acceleration in other sectors
• 2:20
  Speaker 1: of the economy. So diversification is always good, right. So
• 2:24
  Speaker 1: but uh, you know, if you look at the details,
• 2:27
  Speaker 1: for example, you see that the inventories at its sixty
• 2:31
  Speaker 1: one basis points to growth in the third quarter, and
• 2:34
  Speaker 1: the net exports at it eighties three basis points, so
• 2:37
  Speaker 1: together they account for half of that growth rate that
• 2:42
  Speaker 1: we saw in the third quarter. But it's not good.
• 2:44
  Speaker 1: Don't we want to be exporting more? And don't we
• 2:46
  Speaker 1: want to These numbers could be very volatile, and uh,
• 2:51
  Speaker 1: you really need to see several quarters of growth to
• 2:54
  Speaker 1: UM actually to see this is a sustainable kind of
• 2:58
  Speaker 1: growth in these sectors. Exports net exports could be distorted
• 3:03
  Speaker 1: by the engine UM shipping company bankruptcy, so that could
• 3:07
  Speaker 1: be something going on there and it might not be sustainable.
• 3:11
  Speaker 1: Inventories is another wild card. We were talking about considerable
• 3:17
  Speaker 1: pickup in stockpiles and uh, you know this seems to
• 3:21
  Speaker 1: be UM not happening that inventories are going to contribute
• 3:26
  Speaker 1: uh quite a lot going forward, so to me it
• 3:30
  Speaker 1: seems unsustainable. So but overall for the year as a whole,
• 3:35
  Speaker 1: h GDP needs to grow only by one point nine
• 3:38
  Speaker 1: percent in the fourth quarter to reach the fat target
• 3:41
  Speaker 1: of one eight percent for for the years a whole,
• 3:44
  Speaker 1: So that seems to be attainable. Helena. We got new
• 3:48
  Speaker 1: home sales this week, we got durable goods orders, jobless claims, now,
• 3:51
  Speaker 1: we got the g DP print is this up or
• 3:55
  Speaker 1: down week for the for the land of the economy.
• 3:58
  Speaker 1: So let me think it's always a always a mix.
• 4:01
  Speaker 1: We can say that everything's going along, everything is going
• 4:05
  Speaker 1: on chug chugging along just fine. And next week we're
• 4:10
  Speaker 1: going to get the payrolls report correct on Friday. Yes,
• 4:14
  Speaker 1: a big deal, not a big deal. But we care
• 4:17
  Speaker 1: as long as the paces within the kind of the
• 4:20
  Speaker 1: same kind of range, it doesn't need to accelerate from here,
• 4:25
  Speaker 1: that's going to be fine. You know one fifty is
• 4:28
  Speaker 1: still fine. And you think that the market has already
• 4:30
  Speaker 1: baked in twenty five basis points that bonds, for example,
• 4:33
  Speaker 1: I was surprised. I was talking with Lisa earlier today
• 4:35
  Speaker 1: when we got the two point nine g d P report.
• 4:38
  Speaker 1: I was surprised that the bond market did not sell off.
• 4:40
  Speaker 1: We were talking about the same thing on the desk
• 4:42
  Speaker 1: actually earlier this morning. Um, well, as long as the
• 4:47
  Speaker 1: probability on the weird right uh days above. Yes, but
• 4:54
  Speaker 1: I do think, I mean, we got the University of
• 4:56
  Speaker 1: Michigan survey of consumer confidence in this inflation expectation again
• 5:00
  Speaker 1: we're back at that new low. Yes, but I tend
• 5:06
  Speaker 1: to be very skeptical of the survey data ahead of
• 5:09
  Speaker 1: the election. Okay, so any survey data ahead of the election,
• 5:13
  Speaker 1: you might want to wait until sentiment could be very
• 5:18
  Speaker 1: much distorted. Listen to the rhetoric that we're hearing Pale exactly.
• 5:22
  Speaker 1: So it's it's really like it happened before, Like the
• 5:26
  Speaker 1: Michigan survey was distorted during the dead ceiling crisis back
• 5:32
  Speaker 1: in two thousand and eleven, and so what nothing happened
• 5:35
  Speaker 1: to consumer spending, So you have to be very careful
• 5:37
  Speaker 1: with sentiment numbers, both consumer and company sentiment. Elena Shugliatieva,
• 5:43
  Speaker 1: thank you so much for being with a senior US
• 5:46
  Speaker 1: economist for Bloomberg Intelligence breaking down at the GDP report
• 5:51
  Speaker 1: and why the bond market just doesn't seem to be
• 5:54
  Speaker 1: responding right now A tenure U S Treasury is pretty
• 5:57
  Speaker 1: much flat at one point eight five percent. This all right,
• 6:15
  Speaker 1: let's solve the quandary of oil and the price of oil.
• 6:19
  Speaker 1: Joining us is our expert, yes, Vincent Piazza. He is
• 6:23
  Speaker 1: the senior US oil and Gas analyst four Bloomberg Intelligence.
• 6:27
  Speaker 1: Always a pleasure to see you. Thank you. I was
• 6:30
  Speaker 1: looking at X on today stock is down more than
• 6:32
  Speaker 1: one percent. I was looking at Chevron stock is up
• 6:34
  Speaker 1: more than three percent. What's going on between these two companies. So,
• 6:37
  Speaker 1: I think the broad narrative today is that output growth
• 6:42
  Speaker 1: continues to be a challenge for both UM and today
• 6:45
  Speaker 1: it seems output growth is more of a challenge for
• 6:48
  Speaker 1: x On relative to Chevron. With the broader takeaway, the
• 6:51
  Speaker 1: broader narrative is output growth continues to be a challenge.
• 6:55
  Speaker 1: The cap X decline with the spending decline that we've
• 6:59
  Speaker 1: seen since the price decline from a couple of years ago,
• 7:02
  Speaker 1: is impacting the ability for resource capture. So lower output, Yes,
• 7:07
  Speaker 1: spending is down, but the the ability to book the
• 7:11
  Speaker 1: resource UH is challenging as well. The tailwind that refining
• 7:16
  Speaker 1: was during the price decline has now become a headwind.
• 7:20
  Speaker 1: So the outsized gains, the over earning from the refining business,
• 7:24
  Speaker 1: the downstream business, the chemical business now becomes more of
• 7:28
  Speaker 1: a tail wind for both entities. Now, Exxon did say
• 7:32
  Speaker 1: that because of these lower prices UH, it may have
• 7:36
  Speaker 1: to take a look at impairing some of these reserves
• 7:39
  Speaker 1: in North America to the tune of roughly eighteen or
• 7:42
  Speaker 1: t UM and that is a headwind for them. For Chevron,
• 7:48
  Speaker 1: UM sentiment coming into the quarter was somewhat murky. Uh.
• 7:54
  Speaker 1: They came out with a modest uh level of output
• 7:58
  Speaker 1: UM year over year, and they did provide guidance for
• 8:03
  Speaker 1: December output. So for four Q output slightly higher relative
• 8:07
  Speaker 1: to three Q UH so UM modestly more positive for Chevron,
• 8:13
  Speaker 1: less less so for Exxon. But remember what these businesses are, right,
• 8:17
  Speaker 1: they are integrated networks. Uh So they are more defensive.
• 8:23
  Speaker 1: They are lower beta equities because of this, less volatile
• 8:28
  Speaker 1: earnings and cash flow stream. So during a price recovery,
• 8:33
  Speaker 1: you want leverage to the upstream, the more direct exposure
• 8:38
  Speaker 1: to the price recovery, and not these integrated platforms where
• 8:43
  Speaker 1: they're downstream the chemicals and refining business tends to offset
• 8:47
  Speaker 1: any benefit from a higher price in the upstream piece.
• 8:51
  Speaker 1: So I want to go back to Chevron. I mean,
• 8:53
  Speaker 1: they've posted their first profit in a year and seem
• 8:56
  Speaker 1: to be more upbeat, and their shares are up almost
• 8:59
  Speaker 1: first is fourteen percent less than that thirteen percent gain
• 9:03
  Speaker 1: year to date for Exxon. What's Chevron doing to gain
• 9:07
  Speaker 1: investors confidence more than at least Exon. Well, I think
• 9:11
  Speaker 1: it's it's relative sentiment as well, right, So coming into
• 9:14
  Speaker 1: the year better sentiment for Exxon relative to Chevron, and
• 9:18
  Speaker 1: Chevron is outperforming that lower sentiment, right, so under promise
• 9:22
  Speaker 1: over deliver in a sense. And for Chevron this quarter
• 9:25
  Speaker 1: you had some issues with uh some downtime and Nigeria unrest,
• 9:30
  Speaker 1: so that hurt volume as well. UM. For Exxon, the
• 9:35
  Speaker 1: one uh, the one item this quarter that probably has
• 9:40
  Speaker 1: longer near term effects is this issue of the reserve bookings,
• 9:43
  Speaker 1: any potential impairments um come the close of the year. Okay,
• 9:47
  Speaker 1: So taking a bigger step back, X and Chevron, they
• 9:51
  Speaker 1: both delivered their earnings. Uh. Do they give a better
• 9:54
  Speaker 1: sense of what they expect as far as oil prices
• 9:58
  Speaker 1: in the year ahead. Well, I think everyone else. Uh,
• 10:01
  Speaker 1: they are perplexed. It's it's a challenging environment out there. Uh.
• 10:04
  Speaker 1: The the potential OPEC cuts UM also may impact them
• 10:08
  Speaker 1: because they are partners as well, and how much of
• 10:11
  Speaker 1: that cut they would have to take on is uncertain. Uh.
• 10:14
  Speaker 1: Exxon said that on their call today. So, UM, there
• 10:19
  Speaker 1: is as much uncertainty UM that they see as the
• 10:24
  Speaker 1: the the upstream player here in the US. UM. And
• 10:27
  Speaker 1: so we are in the midst of a younger recovery UM,
• 10:33
  Speaker 1: there are still challenges ahead. UM. We're probably oversupplied by
• 10:36
  Speaker 1: roughly a million barrels. UM. We need to see that
• 10:40
  Speaker 1: sustainable demand growth to sort of truncate those imbalances, but
• 10:44
  Speaker 1: that remains to be seen. OPEC. We need to get
• 10:46
  Speaker 1: some clarity as to what type of agreement there really is.
• 10:50
  Speaker 1: If there is an agreement, UM, and that will give
• 10:52
  Speaker 1: us some additional clarity, but that remains a very big
• 10:55
  Speaker 1: unknown and that will be the driver, uh for that
• 10:59
  Speaker 1: will forge any type of price recovery from from the
• 11:02
  Speaker 1: From this point, Vincent Piazza, you are not only just
• 11:06
  Speaker 1: an expert in terms of the macro oil stuff, but
• 11:10
  Speaker 1: in terms of balance sheet and understanding how companies work.
• 11:15
  Speaker 1: Can we just talk for about about a moment of
• 11:17
  Speaker 1: free cash flow from these because these are dividend pairs right,
• 11:21
  Speaker 1: exactly exactly, And you know we've been through this with BP,
• 11:25
  Speaker 1: with that terrible thing in the Gulf of Mexico, the
• 11:27
  Speaker 1: a condo. Well, I mean, when you monkey with the
• 11:30
  Speaker 1: what you changed rather the dividend, right, that's going to
• 11:34
  Speaker 1: change your investor base, right, And that's a very good point.
• 11:36
  Speaker 1: We're talking about shareholder engagement, So shareholder engaged engagement is
• 11:41
  Speaker 1: through the dividend and is also through shrry purchases. Okay,
• 11:46
  Speaker 1: and you fund those sherry purchases and that dividend through
• 11:49
  Speaker 1: your free cash flow, and it sometimes you borrow forward
• 11:52
  Speaker 1: as well. Now, the dividend yield for Chevron and Exxon
• 11:56
  Speaker 1: is three and four percent. The average dividend yield for
• 11:58
  Speaker 1: an SMP company is around somewhere around two percent. You're
• 12:02
  Speaker 1: owning it for that capital repatriation um and for EXCEN
• 12:06
  Speaker 1: they'll throw off somewhere around four or five billion or
• 12:08
  Speaker 1: free cash flow this year um. Chevron will still be
• 12:13
  Speaker 1: in a negative cash flow, so they're still they are
• 12:16
  Speaker 1: borrowing to pay that dividend UM. But in general that
• 12:21
  Speaker 1: remains the key that shareholder engagement because these are lower beta,
• 12:26
  Speaker 1: less volatile investments relative to the capital appreciation you would
• 12:30
  Speaker 1: see from an upstream player. So real quick, I want
• 12:33
  Speaker 1: to go back to the idea that XN may have
• 12:35
  Speaker 1: to write its reserves off by why haven't they done
• 12:38
  Speaker 1: so yet? Well, you do that throughout the you do
• 12:41
  Speaker 1: that from year to year. Once you once you have
• 12:44
  Speaker 1: a full twelve year period and you're able to take
• 12:46
  Speaker 1: the average of those individual twelve months to make that
• 12:50
  Speaker 1: final cut off for the for the for for that
• 12:53
  Speaker 1: fiscal year period. So in other words, there could be
• 12:55
  Speaker 1: a lot of realized losses across the industry. Well, we've
• 12:58
  Speaker 1: seen this last year as well for the upstream players. UM,
• 13:01
  Speaker 1: So this is not a new phenomenon. I think it's
• 13:02
  Speaker 1: the size that has some UM concerned. UM and it
• 13:06
  Speaker 1: probably has led to some of the under underperformance relative
• 13:09
  Speaker 1: to Chevron today. Thank you so much. Got it? Vincive Piazza,
• 13:12
  Speaker 1: senior US oil and Gas analyst for Bloomberg Intelligence, breaking
• 13:16
  Speaker 1: down the tail of two oil companies of Exxon which
• 13:21
  Speaker 1: is losing value of versus Chevron, which is gaining an
• 13:25
  Speaker 1: oil certainly being one of the driving factors pim behind
• 13:29
  Speaker 1: expectations of inflation going forward, oil sort of hovering around
• 13:33
  Speaker 1: forty nine dollars a barrel, still in that fifty two
• 13:36
  Speaker 1: dollar barrel range. I don't know what it will take
• 13:39
  Speaker 1: for us to break out of this. Perhaps Vincent Piazza
• 13:41
  Speaker 1: knows in his his seat, uh, And Lisa bramwoits, I'm
• 13:45
  Speaker 1: here with pim Fox. This is Bloomberg. I would like
• 14:03
  Speaker 1: to learn more about what to do with money, particularly
• 14:06
  Speaker 1: seventy two billion dollars which is how much will Being
• 14:09
  Speaker 1: can Trust overseas. And Tony Roth, chi's chief chief investment
• 14:14
  Speaker 1: officer at Willman can Trust, is responsible with coming up
• 14:18
  Speaker 1: with a strategy. So Tony, I want to start with cash.
• 14:21
  Speaker 1: We're hearing a lot about people who are hoarding larger
• 14:25
  Speaker 1: stockpiles of cash to capitalize on the market. What it
• 14:30
  Speaker 1: turns is that what you're doing now, we we think
• 14:33
  Speaker 1: that the market is already turning. Lisa, by the way,
• 14:35
  Speaker 1: thanks for having me today to you, and Tim Um
• 14:37
  Speaker 1: it's great to speak with you. We think the market
• 14:39
  Speaker 1: is actually already in the process of turning, and we
• 14:42
  Speaker 1: think that that cash is better put to work today
• 14:45
  Speaker 1: unless it's earmark for very short term purposes. We can
• 14:48
  Speaker 1: see that, UM, when we look at the global economy,
• 14:51
  Speaker 1: looking at oil stability, inflation, stronger dollar change, in the
• 14:55
  Speaker 1: commodity supercycle. UM, there's a lot of opportunity in the
• 14:59
  Speaker 1: market right now. We're preconstructive, so we'd rather see that
• 15:02
  Speaker 1: cash put to work. Where are you putting it to
• 15:03
  Speaker 1: work right now? Well, we like emerging markets, UM. So
• 15:07
  Speaker 1: I mentioned the commodity supercycle, and if you look at
• 15:10
  Speaker 1: UM measures like the CRB raw industrials and decks, for example,
• 15:15
  Speaker 1: which moves very closely with the emerging markets UM. It's
• 15:18
  Speaker 1: been moving upwards UM since about February, and we think
• 15:21
  Speaker 1: the merging markets are going to continue to see UM
• 15:24
  Speaker 1: an upward trend. UM credit and equity. Credit and equity
• 15:27
  Speaker 1: are just uh, how how exactly you're going about that? Yeah, yeah,
• 15:31
  Speaker 1: credit and equity. So UM China for example, has been
• 15:34
  Speaker 1: a real underperformer. And when you think about the two
• 15:37
  Speaker 1: draw downs that we had in the market over the
• 15:39
  Speaker 1: last fifteen months, UM August and then uh January February
• 15:44
  Speaker 1: this year, right, really triggered by China. And we think
• 15:46
  Speaker 1: that China has really gotten ahead of its problems in
• 15:49
  Speaker 1: terms of the credit bubble and in terms of its
• 15:52
  Speaker 1: management of its currency. So there's a good opportunity I
• 15:54
  Speaker 1: think in the Chinese equity market right now, UM and
• 15:57
  Speaker 1: more broadly UM Partuity believe with respect of the consumed
• 16:01
  Speaker 1: commodity consumers which haven't had as big a rally as
• 16:04
  Speaker 1: the commodity producers like Russia and Brazil, etcetera. Tony, I'm
• 16:08
  Speaker 1: wondering if you feel that it's a small contradiction that
• 16:11
  Speaker 1: Chinese companies are venturing outside of China to acquire assets.
• 16:15
  Speaker 1: They seem to want to buy almost everything that is
• 16:17
  Speaker 1: not nailed down. And particularly you had the purchase I
• 16:22
  Speaker 1: believe of insurance the Waldorf Historic Hotel group, and then
• 16:29
  Speaker 1: most recently you've had you know, Chinese investment in the
• 16:32
  Speaker 1: United States in a variety of industries, had the Genworth
• 16:36
  Speaker 1: Financial deal this week. Absolutely listen to. China has a
• 16:38
  Speaker 1: lot of capital, So why would that be wanting to
• 16:40
  Speaker 1: go out of the country if it's such a good
• 16:42
  Speaker 1: deal to have it in the country. Well, one of
• 16:45
  Speaker 1: the things to remembers that the Chinese currency is clearly
• 16:47
  Speaker 1: on a trajectory of appreciation. So if you're a Chinese company, right,
• 16:52
  Speaker 1: and you can't a choir skills and capabilities UM that
• 16:58
  Speaker 1: you can mirror inside China by buying foreign companies UM,
• 17:01
  Speaker 1: and you can head your currency exposure and diversify your
• 17:04
  Speaker 1: revenue streams. That can make a lot of sense from
• 17:06
  Speaker 1: the perspective of the US based investor that's looking for appreciation. Certainly,
• 17:11
  Speaker 1: UM to the extent we have the ability to hedge
• 17:13
  Speaker 1: currency exposure in China, UM, it's probably how we would
• 17:16
  Speaker 1: invest in today's market. Going back to the idea of
• 17:20
  Speaker 1: energy prices, and where they are currently. KKR Credit Co
• 17:24
  Speaker 1: had nat Zeka spoke with Bloomberg's Eric Shasker yesterday and
• 17:28
  Speaker 1: basically said that KKR is selling a lot of its
• 17:31
  Speaker 1: distressed debt holdings and a lot of its energy related
• 17:34
  Speaker 1: holding salk in gains so far. Why are they wrong? Well,
• 17:40
  Speaker 1: if we look at what's happening, the US is now
• 17:43
  Speaker 1: the spling energy producer in the world, right, So number one,
• 17:47
  Speaker 1: we see a trajectory where we're still um dropping in
• 17:51
  Speaker 1: terms of US production. So production is down about eleven
• 17:55
  Speaker 1: and a half percent from the peak, and while we've
• 17:59
  Speaker 1: seen a little bit of a rebound and recounts, we're
• 18:01
  Speaker 1: still massively down around se down from the peak and
• 18:05
  Speaker 1: there's a big lag effect. So when we see that
• 18:08
  Speaker 1: the fact that US as a swing producer is still
• 18:11
  Speaker 1: dropping from a production standpoint, And on top of that,
• 18:14
  Speaker 1: we look at the fact that ARAMCO write the big
• 18:17
  Speaker 1: spotty UM state Energy Enterprise oil enterprise is gonna have
• 18:21
  Speaker 1: an I p O sometime in the next twelve to
• 18:23
  Speaker 1: eighteen months, and maybe a very strong incentive keeping the
• 18:26
  Speaker 1: oil price upward as well. UM those are all fairly
• 18:30
  Speaker 1: strong UM supports for the oil price. On top of that,
• 18:34
  Speaker 1: look at the g d P number today, right two
• 18:36
  Speaker 1: point nine percent. So we see not just in the
• 18:39
  Speaker 1: emerging markets, but even in the US, we see strengthening
• 18:41
  Speaker 1: global global activity, which is going to be further aided
• 18:44
  Speaker 1: and embedded by what I call step back from monetary insanity. Right, so,
• 18:48
  Speaker 1: we've had, you know, a broad practice of monetary insanity
• 18:51
  Speaker 1: across the globe. I think that UM, central banks are
• 18:55
  Speaker 1: gonna start to step back from that in the next
• 18:56
  Speaker 1: twelve months, much more quickly than we've anticipated, and that's
• 19:00
  Speaker 1: going to help stabilize the environment as well. Is that
• 19:02
  Speaker 1: going to be bullish for commodity stocks? And if so,
• 19:06
  Speaker 1: do you want to buy commodity stocks that do business
• 19:09
  Speaker 1: around the world like Freeport mcmuran, or do you want
• 19:13
  Speaker 1: to focus on domestic players. I do think that UM,
• 19:17
  Speaker 1: it's going to be helpful for commodities. I do think
• 19:19
  Speaker 1: that we've turned the cycle on commodities. UM it's going
• 19:22
  Speaker 1: to be a slow process. UM We're not going to
• 19:25
  Speaker 1: see an aggressive growth trajectory for commodities. But I do
• 19:29
  Speaker 1: think that materials, for example, in the US, has really
• 19:33
  Speaker 1: not done well recently, and I think that there's a
• 19:35
  Speaker 1: mean reversion opportunity for commodities, domestic commodity stocks UM, So
• 19:41
  Speaker 1: I think that either way to play, it is actually
• 19:42
  Speaker 1: going to be UM, whether it be domestic companies or
• 19:46
  Speaker 1: UH emerging market companies, etcetera, foreign producers. I think they're
• 19:50
  Speaker 1: both going to do fairly well over the next two
• 19:51
  Speaker 1: to three years. And again, it only can trust for
• 19:53
  Speaker 1: long term investors. So I'm not looking to trade, if
• 19:56
  Speaker 1: you will, on the most recent data point, but we're
• 19:59
  Speaker 1: looking for the the trend, and we do see this
• 20:01
  Speaker 1: trend in the commodity space. So Tony switching asset classes
• 20:05
  Speaker 1: taking a look at bonds. If you think that stocks
• 20:07
  Speaker 1: are going to do well broadly, is your sense that
• 20:12
  Speaker 1: developed market government bonds are going to do badly? And
• 20:15
  Speaker 1: if so, how badly? We think they'll do badly on
• 20:18
  Speaker 1: a relative basis. So if you think about where to
• 20:20
  Speaker 1: look for income, right, we think the dividend in today's environment, right,
• 20:23
  Speaker 1: which is right, bonds are still have significantly negative real
• 20:26
  Speaker 1: yields and so while we're not that concerned about the
• 20:29
  Speaker 1: credit side of the bond market, we are very concerned
• 20:31
  Speaker 1: about the rate side, and so we would prefer pick
• 20:33
  Speaker 1: up income UM and MLPs dividends UM. To some degree,
• 20:38
  Speaker 1: the municipal bond market will always stay a little bit
• 20:40
  Speaker 1: underweight there UM today UM relative to our strategic acid allocation.
• 20:45
  Speaker 1: But UM we would stay away from UM. You know,
• 20:48
  Speaker 1: any kind of duration over five years in today's environment.
• 20:51
  Speaker 1: We don't expect to see a complete normalization of the
• 20:54
  Speaker 1: rate environment in the next year or two. Right. We
• 20:56
  Speaker 1: think that we're going to see clearly a hike now
• 20:59
  Speaker 1: in December. I think that's pretty much consensus UM, but
• 21:02
  Speaker 1: also two hikes next year. UM. That'll leave us around
• 21:05
  Speaker 1: UM once a fee or so on the policy rate UM,
• 21:10
  Speaker 1: and it'll leave room for a little bit more rate
• 21:13
  Speaker 1: rate hiking. But we're not going to end up at
• 21:15
  Speaker 1: a police rate of three percent or so anytime soon.
• 21:18
  Speaker 1: So we don't see a huge shift UM in the
• 21:22
  Speaker 1: rate environment. UM. That's gonna crush bonds, but we don't
• 21:25
  Speaker 1: think that they're particularly attractive with durations over five years.
• 21:28
  Speaker 1: Tony Roth, thank you, Chief investment officer, Wilmington's Trust, managing
• 21:32
  Speaker 1: seventy two billion dollars. I'm pim Fox along with Lisa Abramowitz.
• 21:36
  Speaker 1: This is Bloomberg. Well, it's not hard to imagine what
• 21:53
  Speaker 1: happens when you're in a business that is competing on
• 21:57
  Speaker 1: price and is also looking at record infant tory in
• 22:00
  Speaker 1: some cases, I want to bring in Mike Jackson. He
• 22:03
  Speaker 1: is the chief executive of Auto Nation. He joins us now.
• 22:07
  Speaker 1: Mike Jackson, thanks very much for being with us, My pleasure.
• 22:10
  Speaker 1: Good morning. All right. So, you know, if if I had,
• 22:13
  Speaker 1: if I had a way to console you, I would
• 22:15
  Speaker 1: because you know, you've been through a little bit of
• 22:18
  Speaker 1: a trial by fire here. The stock is down I
• 22:21
  Speaker 1: believe about three and a half percent today, it's down
• 22:25
  Speaker 1: so far this year. Uh, you're in a tough business
• 22:29
  Speaker 1: and you're trying to find new ways to invigorate the
• 22:33
  Speaker 1: automobile retail business. You're opening standalone used car outlets. Tell
• 22:38
  Speaker 1: me what's going on with the business and how you're surviving. Well.
• 22:42
  Speaker 1: We understand that the new vehicle business is cyclical, uh,
• 22:47
  Speaker 1: in one of three phases, growth, plateau, and decline. Years ago,
• 22:52
  Speaker 1: we said we wanted to have a way to grow
• 22:55
  Speaker 1: when this marketplace plateau. So we launched the Auto Nation
• 23:00
  Speaker 1: brand from coast to coast. It's been very well accepted
• 23:04
  Speaker 1: and trusted by consumers, and we launched the Auto Nation Express,
• 23:07
  Speaker 1: our digital capability from which we get of our business today.
• 23:11
  Speaker 1: So now we're spanning dramatically into the pre owned and
• 23:16
  Speaker 1: UH customer care business, building free center UH, freestanding service
• 23:21
  Speaker 1: and sales centers UH within our markets, which will be
• 23:25
  Speaker 1: under the brand Auto Nation, and in order to have
• 23:28
  Speaker 1: a compelling value story and a good experience for our
• 23:32
  Speaker 1: customers in those centers, UH, they will all be one
• 23:36
  Speaker 1: price on the pre owned vehicles, and we will launch
• 23:39
  Speaker 1: Auto Nation parts and accessories in these centers and also
• 23:44
  Speaker 1: offer those parts and accessories in our franchise business. So
• 23:49
  Speaker 1: as I look at it now, we're the largest retailer
• 23:52
  Speaker 1: of premium luxury vehicles in the US, with almost a
• 23:55
  Speaker 1: hundred premium luxury franchises including Mercedes, Ben's, BMW, Porsche across America.
• 24:01
  Speaker 1: We have a very large franchise volume business, and now
• 24:06
  Speaker 1: we will have freestanding pre owned sales and service centers
• 24:10
  Speaker 1: across our footprint. You know, we were talking to Bob
• 24:12
  Speaker 1: Shanks yesterday UH CFO of Ford, and he was talking
• 24:16
  Speaker 1: about how the cycle is maturing. UM. From your perspective,
• 24:20
  Speaker 1: you talk about plateau ng in the auto industry, what's
• 24:24
  Speaker 1: the risk and how can you measure it? Of a
• 24:26
  Speaker 1: potential significant downturn in auto values and in appetite for
• 24:32
  Speaker 1: new for new vehicles. So once the industry enters the
• 24:36
  Speaker 1: plateau phase, it can run many years. There. We've gone
• 24:39
  Speaker 1: five six years in plateau, and if I look at
• 24:43
  Speaker 1: the availability of credit and the cost of money and
• 24:46
  Speaker 1: the price of gasoline, we are in an extended period
• 24:51
  Speaker 1: a plateau. But ultimately a declient will come, but that
• 24:54
  Speaker 1: would take much higher rates or restriction of credit compared
• 24:58
  Speaker 1: to what we have today. So but even in plateau,
• 25:01
  Speaker 1: it's a challenge to us as a company to have
• 25:04
  Speaker 1: the ambition to still grow. And hence we've built a
• 25:08
  Speaker 1: brand and hence we've built this digital capability that we're
• 25:11
  Speaker 1: now extending a new business field. So we have the
• 25:14
  Speaker 1: opportunity to continue to grow just quickly. Mike the as
• 25:20
  Speaker 1: Lisa was saying, having to do with the fourth CFO,
• 25:24
  Speaker 1: any area of the country that is a better or worse,
• 25:27
  Speaker 1: any particular product that's better or worse, give you about
• 25:29
  Speaker 1: fifteen seconds. Well, we can go right to what's the
• 25:32
  Speaker 1: most difficult part of the country, and that would be
• 25:36
  Speaker 1: the energy markets, whether it's Colorado or Texas or up
• 25:39
  Speaker 1: into Oklahoma. While it's stabilized. It's stabilized at a lower level,
• 25:45
  Speaker 1: and um, those are the most difficult markets. The two
• 25:48
  Speaker 1: coasts are doing fine. Thanks for listening to the Bloomberg
• 25:57
  Speaker 1: P and L podcast. You can subscribe and listen to
• 26:00
  Speaker 1: interviews at iTunes, SoundCloud, or whatever podcast platform you prefer.
• 26:05
  Speaker 1: I'm Pim Fox. I'm out there on Twitter at pim Fox.
• 26:09
  Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one
• 26:12
  Speaker 1: before the podcast. You can always catch us worldwide on
• 26:15
  Speaker 1: Bloomberg Radio.