Latest / Bloomberg Intelligence / Algo Trading Could Amplify A Correction To 10 to 15%

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Algo Trading Could Amplify A Correction To 10 to 15% · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Wicks. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. A big question in today's market,
• 0:23
  Speaker 1: how do you trade? By tweet? The question as markets
• 0:27
  Speaker 1: get Royal to buy a series of competing headlines, joining
• 0:31
  Speaker 1: us down to discuss Matt Mainly, managing director in equity
• 0:33
  Speaker 1: strategist at Miller, tay Back and Company. Matt, how do
• 0:36
  Speaker 1: you trade around? Tweets the very any Ey? That's for
• 0:42
  Speaker 1: darn sure. Uh. And it's it's, you know, they say,
• 0:45
  Speaker 1: trying to trade around in an investor around And of
• 0:47
  Speaker 1: course you got to keep that kind of longer term
• 0:51
  Speaker 1: view off things. But the one, the one thing that
• 0:53
  Speaker 1: concerns me a little bit about the the short term
• 0:55
  Speaker 1: or i say, over the next a month or two,
• 0:59
  Speaker 1: is the no matter what the president tweets, we have
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  Speaker 1: more than just the trade issued it to face with
• 1:06
  Speaker 1: what's going on in Hong Kong. There's no question we're
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  Speaker 1: also seeing a slowdown in the economy and and and
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  Speaker 1: earnings growth. Uh. And you know, so there's several different
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  Speaker 1: issues that UH creating a headwind for the market. And
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  Speaker 1: you know, we're six six percent from the all time high,
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  Speaker 1: which really isn't that much of a decline, uh, given
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  Speaker 1: the the you know, the stretch valuations and stuff that
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  Speaker 1: we saw before. So I don't think this trade issue
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  Speaker 1: is gonna go away as it is. Uh. So I
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  Speaker 1: think we probably have some more downside here, all right,
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  Speaker 1: how much more downside? Well? But you know, it's funny,
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  Speaker 1: given given what the uh's going on right now, I
• 1:39
  Speaker 1: could say, you know, she's a normal eight to ten
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  Speaker 1: percent correction would be in the cards, and that would
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  Speaker 1: not be a big deal. The one little problem we
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  Speaker 1: do have, though, of course, is that today's mechanized tradings,
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  Speaker 1: with all the high frequency traders and the al goes
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  Speaker 1: and and things like that, that we tend to overshoot
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  Speaker 1: when the month's momentum gets going in either direction. So
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  Speaker 1: this could become more of a a tend of fifty
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  Speaker 1: percent correction. UH. Again based on that kind of artificial movement.
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  Speaker 1: All right, So let's cue the FED reaction function here
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  Speaker 1: and wonder going forward how much the FED is going
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  Speaker 1: to respond to a possible decline of ten in US
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  Speaker 1: equities and whether it will matter. So what's your expectation there? Yeah,
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  Speaker 1: I mean, it's one thing I've been saying for a
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  Speaker 1: long time is that you know, the FED is definitely
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  Speaker 1: data dependent and economically dependent, but they've also proven even
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  Speaker 1: more so in the last few years or last year
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  Speaker 1: or so, that there are a very market dependent So
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  Speaker 1: I do think that will have an impact. Now if
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  Speaker 1: we get that ten to fifteent correction, Uh, that will
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  Speaker 1: I think get another two rate cuts this year instead
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  Speaker 1: of just one. And if it gets even deeper than that,
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  Speaker 1: if we see the same kind of a turmoil we
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  Speaker 1: saw on the fourth quarter of last year, I think
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  Speaker 1: there's a good chance that they could reignite a que program. Wow,
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  Speaker 1: reignite a qui program as soon as this year. I mean,
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  Speaker 1: by early next year, if we think things become bad.
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  Speaker 1: I think that's a good chance of that. But to
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  Speaker 1: what end, right, I mean, we're looking at thirty year
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  Speaker 1: treasury yields that are all time lows, benchmark yields around
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  Speaker 1: the board are pretty low. What's the goal here? How
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  Speaker 1: much is that going to actually ignite growth? Well, I mean,
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  Speaker 1: as UH as we always us. As a strategist, I
• 3:17
  Speaker 1: gotta sit there and say, oh, what what should distinguish
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  Speaker 1: between what they should do and what they will do?
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  Speaker 1: So what I've just described as what I think they
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  Speaker 1: will do, should they do it, I don't know what
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  Speaker 1: what kind of end that kind of brings it brings in.
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  Speaker 1: I mean to me, bear markets and and and recessions,
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  Speaker 1: especially the normal ones we have. But everybody's afraid that
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  Speaker 1: the last two were so bad that gosh, we're gonna
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  Speaker 1: have another fift a bearn market. Well, usually they're mild
• 3:41
  Speaker 1: recessions in twenty bearer markets, they're normal. Those things are healthy.
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  Speaker 1: Why the fed fields that we can't go have one
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  Speaker 1: of those is beyond me. I think would be healthy
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  Speaker 1: if we did that. However, I do think that they
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  Speaker 1: do feel it's important to keep the this uh expansion going,
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  Speaker 1: and that's why I think that's what they'll do. All right,
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  Speaker 1: So I'm gonna talk stical perspective. Which equity index has
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  Speaker 1: the most upside of the most downside? Well, the one thing,
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  Speaker 1: the one I'm watching the most closely right now. You know,
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  Speaker 1: Dave Wilson just talked about it was the Russell two thousand. Uh.
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  Speaker 1: You know, it's been an important leading indicator for the
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  Speaker 1: stock market, uh for you know, for many years, but
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  Speaker 1: even especially last year, and we saw it it turned
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  Speaker 1: down before the rest of the market did before you
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  Speaker 1: that in that fourth quarter of correction. Uh. So what
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  Speaker 1: I'll be looking for is, right now it's testing it's
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  Speaker 1: June lows, uh, and so any further downside from there
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  Speaker 1: will give it a key lower low and probably indicate
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  Speaker 1: that the rest of the markets heading a little bit
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  Speaker 1: lower as well. You know, as I said, into that
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  Speaker 1: tent to percent correction territory, and uh, the Russell tends
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  Speaker 1: to uh see a bit of a wider, wider swings.
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  Speaker 1: So I think that's probably got more downside than than
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  Speaker 1: the SMP. And which industry do you think, which sector
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  Speaker 1: of the market do you think is is poised to
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  Speaker 1: uh most underperform going forward? Well, it's uh, I'm afraid
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  Speaker 1: it's gonna have to be. You know, there's some of
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  Speaker 1: the chip stocks and the semiconductor I'm sorry in the
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  Speaker 1: text box. Overall, Uh, they've had the biggest move, uh,
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  Speaker 1: you know, and therefore they probably give us the biggest
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  Speaker 1: down side. Again, I'm not certainly not calling for what
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  Speaker 1: we saw in two thousand or anything like that. In fact,
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  Speaker 1: I think this will present some great opportunities. And if
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  Speaker 1: the Fed does indeed step back on the accelerator, Uh,
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  Speaker 1: if people have a little extra cashiy on the sidelines
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  Speaker 1: that they raised now to take advantage of an overshoot
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  Speaker 1: to the downside, UH, they're gonna be Uh. They're gonna
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  Speaker 1: profit very well in next year the longer term. Matt Maylie,
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  Speaker 1: thank you so much for being with us. Matt Maylee
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  Speaker 1: is managing director and equity strategist at Miller take Back
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  Speaker 1: and Company. Taking a look at how technical indicators point
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  Speaker 1: to further downside ahead. Question Walmart shares surging even after
• 5:56
  Speaker 1: Macie's came out with worse than expected results. Looking around,
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  Speaker 1: what is the state of the US consumer? How are
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  Speaker 1: retailers faring? We are so lucky to have with us.
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  Speaker 1: Bert flicking Jar, managing director at Strategic Resource Group, joining
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  Speaker 1: us here in our interactive broker studios. Let's start with
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  Speaker 1: Walmart shares jumping the most in a year. UH. Solid
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  Speaker 1: growth in their e commerce business, solid growth when it
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  Speaker 1: comes to consumers not seeing a huge impact by tariffs.
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  Speaker 1: Give us your sense, what's the most important thing we
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  Speaker 1: need to focus on in these earnings. Most important thing,
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  Speaker 1: Lisa is Walmart has the best CEO anywhere in worldwide
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  Speaker 1: retail and the best leadership team since Sam Walton started
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  Speaker 1: the company and ran it from so in that Doug
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  Speaker 1: McMillan believes in doing doing what's right. So, for example,
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  Speaker 1: in solar sustainability, environmental Walmart wasn't there under prior leadership.
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  Speaker 1: Walmart is up there with Amazon and Target as being
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  Speaker 1: the best in solar power. What's the implication for the
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  Speaker 1: consumer and the comp penny is Walmart's able to pay
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  Speaker 1: higher prices, higher wages to its workers through the savings
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  Speaker 1: and the money it's making through environmental and sustainable solar
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  Speaker 1: and lowering prices to shoppers. Everybody's winning. Let's let's dig
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  Speaker 1: a little bit further into salaries or wages, you know,
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  Speaker 1: hourly wages. Walmart has come under a lot of attack
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  Speaker 1: traditionally for not paying people that much or having people
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  Speaker 1: on in a part time basis so they don't have
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  Speaker 1: to pay them benefits. Uh, there have been a salary
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  Speaker 1: increases or wage increases, hourly wage increases. How has that
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  Speaker 1: affected their business? It's affected the business in terms of
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  Speaker 1: higher workers satisfaction, higher productivity, higher retention, greater consumer satisfaction
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  Speaker 1: scores through consumer reports, dot Com, etcetera. So Walmart that
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  Speaker 1: was criticized for raising prices because Mr Sam or Sam Walton,
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  Speaker 1: the founder wrote in his book My Story, he always
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  Speaker 1: paid workers as little as they could. His son on
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  Speaker 1: the four anniversary of the Walmart profit sharing plan, blew
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  Speaker 1: up the plan, and Doug McMillan was for the last
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  Speaker 1: five years record comparison and same store sales since he
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  Speaker 1: started because he believes in doing what's right for the worker,
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  Speaker 1: which is right for the shopper and right for the community.
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  Speaker 1: And has there been a less political pressure on Walmart
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  Speaker 1: as a result, there's been less political power. McMillan, who's
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  Speaker 1: this son of a Vietnam veteran army doctor, took it
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  Speaker 1: upon himself to discontinue automatic and semi automatic weapons years ago. So,
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  Speaker 1: in addition to solar sustainability, discontinuing merchandise with the Confederate flag,
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  Speaker 1: and raising shoppers standards of living through the lowest prices
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  Speaker 1: Walmart's had in ten years and establishing co low price
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  Speaker 1: leadership with Winco lowest in the US. Walmart's winning for
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  Speaker 1: the worker, the shopper and really helping to drive the economy.
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  Speaker 1: In the stock market today, as you said, Walmart's up
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  Speaker 1: almost five pc, the S and P Retail Index, the
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  Speaker 1: x RT on the Bloomberg's down almost one percent. So
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  Speaker 1: Walmart's really breaking through very clearly. The Walmart earnings inspired
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  Speaker 1: you on multiple levels. Let's move on to something that
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  Speaker 1: maybe a little less inspiring, but at least isn't as
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  Speaker 1: bad as some people have been expecting. We're talking j C.
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  Speaker 1: Penny came out with less bad results than people hadn't
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  Speaker 1: been expecting. What stands out to you, Lisa's you've reported
• 9:23
  Speaker 1: well for a long time is Penny's major debt maturities
• 9:27
  Speaker 1: come up in three Penny has dynamic new leadership. If
• 9:32
  Speaker 1: they get enough time and financial forbearance, they can turn
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  Speaker 1: the company around. But with declining earnings and same store sales,
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  Speaker 1: they really have to do it between the fourth quarter
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  Speaker 1: and into the next fiscal years, you've reported because the
• 9:47
  Speaker 1: debt covenants and credit lines and terms could be tightened otherwise. Yeah,
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  Speaker 1: it really remains to be seen whether they'll be patients
• 9:53
  Speaker 1: among bond investors when it comes to this name, I
• 9:56
  Speaker 1: want to broaden out generally to see what all of
• 9:59
  Speaker 1: the earnings and the economic data means about the US consumer.
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  Speaker 1: Time again, economists come out, they say businesses are pulling
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  Speaker 1: back their spending, but still the U s consumer is
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  Speaker 1: in a good state, solid continues to spend. The retail
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  Speaker 1: sales figures better than expected. Do you think that this
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  Speaker 1: is sort of lagging lagging indicator that will slow down
• 10:19
  Speaker 1: based on what we're seeing, or do you think that
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  Speaker 1: this is an accurate read of where we're at. It's bifurcated.
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  Speaker 1: Is you reference Macy's department and specialty stores all struggling.
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  Speaker 1: What we're seeing is that combat denominator. All the retailers
• 10:31
  Speaker 1: are winning or low price t j X, Amazon, all
• 10:35
  Speaker 1: the Walmart target, b J's costco, and they're all using
• 10:39
  Speaker 1: solar to pay more in terms of worker compensation and
• 10:43
  Speaker 1: lower prices. So with the lower prices they profitably increased
• 10:46
  Speaker 1: market share, while the twentieth century proverbial Roman empires of
• 10:50
  Speaker 1: retail are crumbling. So what does that mean? I mean
• 10:53
  Speaker 1: if if if the low cost retailers are doing best.
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  Speaker 1: Is that bearished? Does that mean at the consumer isn't
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  Speaker 1: doing that well because they gravitating to the lowest price items,
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  Speaker 1: or does it mean that people just simply can compare
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  Speaker 1: prices and want a go deal. It's your referencing, Lisa,
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  Speaker 1: consumers can compare prices. But as you've reported this week
• 11:14
  Speaker 1: and on on the Bloombergh debt for seniors between the
• 11:18
  Speaker 1: ages of fifty to seventy of increased seventy to UH
• 11:23
  Speaker 1: and as a result, those are the sweet spot for
• 11:25
  Speaker 1: the department stores. So they're really careful in terms of spending.
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  Speaker 1: So instead of going to the department store, they go
• 11:31
  Speaker 1: to Burlington, t J Max, Marshalls. And consumers, as you said,
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  Speaker 1: so well, whether it's price discovery, whether it's Walmart, dot Com,
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  Speaker 1: Amazon or Ali Baba are getting the lowest prices and
• 11:43
  Speaker 1: buying online or buying off price. So when we talk
• 11:46
  Speaker 1: about Walmart, we have to look ahead to Target. To
• 11:49
  Speaker 1: Target used to be called TARJ by some because it
• 11:53
  Speaker 1: caters to a little bit higher end consumer than Walmart.
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  Speaker 1: So there seems to be a battle forest between Walmart
• 12:01
  Speaker 1: and Target. Who's winning? Uh, Walmart's winning, but there's an
• 12:05
  Speaker 1: opportunity for both Target and Walmart with the liquidation of
• 12:09
  Speaker 1: toys are us is that they both have much more
• 12:14
  Speaker 1: room and should have more space for selling toys as
• 12:18
  Speaker 1: well as with a record number of rescue pets, puppies
• 12:21
  Speaker 1: and cats being adopted UH growing two to three times
• 12:25
  Speaker 1: more than the birth rate for children in the US. UH,
• 12:28
  Speaker 1: pet toys and accessories are going up. In the common
• 12:31
  Speaker 1: denominatory they both have is solar, their thirty nuclear plants
• 12:35
  Speaker 1: being decommissioned, and even more coal. So they're locking in
• 12:39
  Speaker 1: their power rates number two operating costs at half at
• 12:42
  Speaker 1: the price for the next twenty years and pouring those
• 12:46
  Speaker 1: savings back back into the shopper and their stores and innovation,
• 12:50
  Speaker 1: while the rest of retails like Fred flint Stone and
• 12:54
  Speaker 1: Slate Rock Quarry just watching the world go by. I
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  Speaker 1: think it won't change, so just quickly here to tie
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  Speaker 1: this all together and put a bow on it. I'm wondering,
• 13:01
  Speaker 1: taking a look at the earnings we've gotten out of
• 13:03
  Speaker 1: the retail sector so far, the retail economic data that
• 13:06
  Speaker 1: we got out this morning, how would you characterize the
• 13:09
  Speaker 1: state of the U s consumer? UH Dick and Esque
• 13:12
  Speaker 1: best of times and worst of times from tail of
• 13:14
  Speaker 1: two cities. Best of times Walmart, Target Costco, all the
• 13:19
  Speaker 1: t j Ax, Burlington, the off price linked retailers. Worst
• 13:23
  Speaker 1: of times for the department stores, food stores, drug stores
• 13:26
  Speaker 1: and specialty stores. Burke Flickinger always wonderful having you. Thank
• 13:29
  Speaker 1: you great to team up. Please thank you for Flickinger,
• 13:32
  Speaker 1: Managing director at Strategic Resource Group, joining us here in
• 13:34
  Speaker 1: our Bloomberg Interactive Broker studio is taking a look at Walmart.
• 13:50
  Speaker 1: It may become the biggest initial public offering in the
• 13:53
  Speaker 1: chemicals space. China National Chemical is looking to potentially spinoffs
• 13:58
  Speaker 1: in Genta. Uh in it with a listing here to
• 14:02
  Speaker 1: discuss what this could mean. Why now? Jason Miner, Senior
• 14:05
  Speaker 1: Global Coupicals analysts for Bloomberg Intelligence. So, Jason, China National
• 14:09
  Speaker 1: Chemical Corporation purchased in Genta back in seen. Why are
• 14:14
  Speaker 1: they doing this now? Well, the timing is key. So
• 14:17
  Speaker 1: remember where this is a market that hasn't grown much
• 14:21
  Speaker 1: over the last few years, which led to all the restruction.
• 14:23
  Speaker 1: We had down DuPont merge and put together Cortiva, which
• 14:26
  Speaker 1: is one of the big competitors Buyer mon Santo and
• 14:29
  Speaker 1: we all know there have been some challenges there. Uh,
• 14:31
  Speaker 1: and then this year we had a massive amount of flooding.
• 14:33
  Speaker 1: I think they're looking for a chance to bring this
• 14:36
  Speaker 1: out into the capital markets, and when they time it,
• 14:39
  Speaker 1: they'll have to play around with when they might get
• 14:41
  Speaker 1: a rebound. So with corn prices below five, well below
• 14:45
  Speaker 1: five dollars and playing with four dollars today, those kind
• 14:48
  Speaker 1: of heady earnings growth days of the past have been
• 14:50
  Speaker 1: a long forgotten memory for a while. Clearly there's some
• 14:53
  Speaker 1: capital to come from the market for an interesting idea
• 14:56
  Speaker 1: like this um, but timing it has to do with
• 14:58
  Speaker 1: when we could get a bounce from what's been a
• 15:00
  Speaker 1: tough time. So we're talking about pesticides, right, We're talking
• 15:03
  Speaker 1: about both pesticides and seeds, and that's sort of the
• 15:05
  Speaker 1: interesting thing. You used to have one company makes seeds
• 15:08
  Speaker 1: and the other make the pesticides. And over the last
• 15:10
  Speaker 1: few years we created these three new bundles. The Cyngenta
• 15:14
  Speaker 1: KEM China story is one where we put it all together.
• 15:16
  Speaker 1: No one's ever proved that that actually works very well. Uh.
• 15:19
  Speaker 1: So these new pesticide and seed companies, there are really
• 15:23
  Speaker 1: three of them globally. Uh. They're all trying to find
• 15:25
  Speaker 1: their way forward. Uh, sort of an unproven model. What's
• 15:29
  Speaker 1: the what's the theory behind some of these tie ups
• 15:31
  Speaker 1: and sort of Uh some of the speculation about why
• 15:34
  Speaker 1: it might not work well. The theory is the one
• 15:37
  Speaker 1: stop shop. Actually, Um, you used to have a bunch
• 15:41
  Speaker 1: of people visiting the farmers. Some of them are selling
• 15:43
  Speaker 1: them seed and some of them are selling them spray. Uh.
• 15:46
  Speaker 1: The idea is under pressure and with a lot more
• 15:49
  Speaker 1: digital tools coming to the market, that you really want
• 15:51
  Speaker 1: to circle that farmer and offer them an app they
• 15:54
  Speaker 1: can put on their tablet that recommends all sorts of
• 15:56
  Speaker 1: things from the seed to the spray. The challenges doesn't
• 16:01
  Speaker 1: hurt innovation because, um, you're not necessary. You don't necessarily
• 16:05
  Speaker 1: want one company who thinks of the app and the
• 16:07
  Speaker 1: seed and the spray when deciding what to commercialize. More
• 16:10
  Speaker 1: competition might bring more innovation. That's the concern now. When
• 16:13
  Speaker 1: it comes to China National Chemical Corporation, its purchase of
• 16:17
  Speaker 1: c Genta was one of the biggest by a Chinese
• 16:20
  Speaker 1: company of an overseas of an overseas firm in history.
• 16:25
  Speaker 1: I'm trying to understand whether this was part of their playbook,
• 16:29
  Speaker 1: part of their mindset when they bought c Genta that
• 16:31
  Speaker 1: they were going to list it at some point in
• 16:34
  Speaker 1: the not so distant future. So they had said that
• 16:37
  Speaker 1: in the past, and I think the challenges a lot
• 16:39
  Speaker 1: of it has to be seen through the lens of
• 16:41
  Speaker 1: food security. China's crop yields are in many cases half
• 16:44
  Speaker 1: those of the rest of the world, and biotechnology, of
• 16:47
  Speaker 1: which Centa was just one of three global platforms, is
• 16:51
  Speaker 1: a key way to boost food security UH and to
• 16:55
  Speaker 1: boost those yields UM. The challenge with the idea of
• 16:58
  Speaker 1: the I p O. It does international legitimacy, it creates
• 17:01
  Speaker 1: confidence from the buyer's and Genta's footprint is obviously far
• 17:05
  Speaker 1: outside of China. They've got a lot of sales in
• 17:08
  Speaker 1: a lot of countries. UH. It certainly raises some capital
• 17:11
  Speaker 1: to pay back UM the way that they funded it UM,
• 17:14
  Speaker 1: but whether or not it's all about earnings growth is
• 17:16
  Speaker 1: the challenge, because again, part of the play here was
• 17:19
  Speaker 1: probably to help China boost its food security.