Latest / Bloomberg Intelligence / Federated's Orlando: Bullish on Stocks, S&P at 3100 (Podcast)

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Federated's Orlando: Bullish on Stocks, S&P at 3100 (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We're
• 0:33
  Speaker 1: broadcasting from the Bloomberg Intractor Broker's studios. I'm Pim Fox
• 0:37
  Speaker 1: along with Lisa Abramowitz. Our guest now is Phil Orlando.
• 0:39
  Speaker 1: He is the chief equity market strategist at Federated Investors.
• 0:43
  Speaker 1: Thank you very much for being here, Phil, always a pleasure.
• 0:46
  Speaker 1: Thanks for having me back. Happy New Year, belated, Happy
• 0:48
  Speaker 1: New Year to you. Are we in a trade war?
• 0:52
  Speaker 1: We've been in a trade war for a while US
• 0:55
  Speaker 1: China situation, yes, yes, but but one you know, I
• 1:00
  Speaker 1: don't know if trade war is the right word. Negotiations skirmish.
• 1:04
  Speaker 1: I mean, we we think, we think there's a light
• 1:06
  Speaker 1: at the end of the tunnel, and we're hoping that
• 1:08
  Speaker 1: light is not the headlight of an oncoming train. And
• 1:11
  Speaker 1: and we think, over the course of the next two months,
• 1:13
  Speaker 1: we're going to get some you know, some visibility on this.
• 1:17
  Speaker 1: How would sorry, but how would an investor actually position
• 1:21
  Speaker 1: a portfolio until they find out whether we're going to
• 1:25
  Speaker 1: get an increase in tariffs, whether it's going to cost
• 1:28
  Speaker 1: more to make products anywhere that that that's a great question.
• 1:31
  Speaker 1: So what what we've got, in our opinion, has been
• 1:35
  Speaker 1: this elaborate kabuki dance that's been going on for a while,
• 1:38
  Speaker 1: you know, threatening tariffs and and you know this and
• 1:41
  Speaker 1: that in order to achieve the objective. Now, what is
• 1:44
  Speaker 1: the objective? So you look at the situation from a
• 1:48
  Speaker 1: financial standpoint, the United States is running six hundred billion
• 1:51
  Speaker 1: dollar balance of trade deficit against the world and and China,
• 1:55
  Speaker 1: uh slightly more than four billion. Is is is the
• 2:00
  Speaker 1: just defender. That's the reason why why the administration, i think,
• 2:03
  Speaker 1: has focused their attention on China. Now, what these discussions,
• 2:07
  Speaker 1: negotiations where we hope they end up by this much
• 2:11
  Speaker 1: first deadline is twofold number one. China agrees to narrow
• 2:15
  Speaker 1: that deficit, cut it in half, let's say, to something
• 2:18
  Speaker 1: in the two billion dollar neighborhood by buying more of
• 2:20
  Speaker 1: our stuff that they need, Agricultural products like soybean and corn,
• 2:25
  Speaker 1: uh energy, aerospace and defense, electronics, automobiles, things like that.
• 2:30
  Speaker 1: The throne of your issue here is the theft of
• 2:35
  Speaker 1: intellectual property and and and that's that's where I think
• 2:38
  Speaker 1: this thing gets stickier. Now. Our view is that this
• 2:42
  Speaker 1: ends well, that the United States is under pressure, the
• 2:46
  Speaker 1: Chinese economy and financial markets are under pressure. The leaders
• 2:49
  Speaker 1: want to come to a deal, and so that's our
• 2:52
  Speaker 1: base case. Now. Part of the correction that we saw
• 2:56
  Speaker 1: in stocks over the last four months of the year
• 2:59
  Speaker 1: was in part based upon the markets perception that this
• 3:02
  Speaker 1: ends badly and that we're looking at a recession in
• 3:06
  Speaker 1: the US, maybe a recession in China, maybe a global recession.
• 3:11
  Speaker 1: Based upon our analysis that that's not the right conclusion.
• 3:15
  Speaker 1: So we're actually pretty excited with the SNP at right
• 3:20
  Speaker 1: around Christmas. We we've had this nice ten percent rally
• 3:23
  Speaker 1: over the course of the last you know, couple of weeks.
• 3:26
  Speaker 1: We think we're running into some resistance here. We can absolutely,
• 3:30
  Speaker 1: in our view, see a retest over the course of
• 3:33
  Speaker 1: the next couple of months. But there are these three
• 3:35
  Speaker 1: critical signposts in March, the trade thing with China being
• 3:39
  Speaker 1: the first of them. The f O M c meeting
• 3:41
  Speaker 1: in the middle of the month, and then the bregsit
• 3:43
  Speaker 1: deadline at the end of the month. We we think
• 3:45
  Speaker 1: we get some clarity, some positive clarity, and all three
• 3:48
  Speaker 1: of those issues over the course of the month of March.
• 3:52
  Speaker 1: So there's volatility that we're seeing in the first quarter.
• 3:55
  Speaker 1: We think leads to a much better environment in the
• 4:00
  Speaker 1: back nine months of the year. So we think the
• 4:02
  Speaker 1: market's gonna end up, you know, in pretty good shape.
• 4:04
  Speaker 1: People look at our forecasts and say, you guys are lunatics,
• 4:09
  Speaker 1: but you know, look, if if those three things fall
• 4:12
  Speaker 1: into place, and we think they will, we think stocks
• 4:14
  Speaker 1: are gonna be a lot higher twelve months rom Now,
• 4:16
  Speaker 1: so let's talk specifics here, because we did just report
• 4:19
  Speaker 1: that black Rock is playing to cut three of its
• 4:21
  Speaker 1: global workforce. It comes a day after State Streets said
• 4:23
  Speaker 1: that they were going to be cutting a significant portion
• 4:26
  Speaker 1: of their workforce. We've seen financials on the asset management
• 4:30
  Speaker 1: side as well as on the banking side really beaten up.
• 4:33
  Speaker 1: Are you seeing value there? You know, Lisa, I've been
• 4:37
  Speaker 1: doing this now for thirty nine years, and I've noticed
• 4:41
  Speaker 1: the trend that that when the asset managers do these things,
• 4:46
  Speaker 1: hires or fires, They usually do them at exactly the
• 4:49
  Speaker 1: wrong time, at the inflection point in the cycle when
• 4:52
  Speaker 1: when they're hiring people, it's usually we're about to get
• 4:55
  Speaker 1: a big blow off on a bull rally, And when
• 4:57
  Speaker 1: they're firing people is usually at the bottom of the psyche,
• 5:00
  Speaker 1: when we're about to take off our best gas. Based
• 5:02
  Speaker 1: upon what we just talked about with the China question,
• 5:05
  Speaker 1: is that stocks are going to be in a lot
• 5:06
  Speaker 1: better shape twelve months from now than they are today.
• 5:09
  Speaker 1: Uh and and if if if a couple of the
• 5:11
  Speaker 1: big bell weathers are laying off a couple of percent
• 5:14
  Speaker 1: of their workforce, that gives me greater confidence that we're
• 5:17
  Speaker 1: at a we're an inflection point ready to go higher.
• 5:19
  Speaker 1: Although in fairness, the asset management industry is facing a
• 5:22
  Speaker 1: pretty fundamental shift toward passive management and towards reduced costs
• 5:27
  Speaker 1: and a lot of other things that are causing them
• 5:29
  Speaker 1: to want to reduce headwinds over well. But and that's
• 5:32
  Speaker 1: an interesting point that and and if we were to
• 5:34
  Speaker 1: have this conversation two years ago, I would agree with
• 5:37
  Speaker 1: you wholeheartedly. But if you look at the trends over
• 5:40
  Speaker 1: the last couple of years, um the active has actually
• 5:44
  Speaker 1: been beating passive from performance standpoint over the last couple
• 5:47
  Speaker 1: of years, let's be honest. And and we're starting to
• 5:49
  Speaker 1: see that shift back over to active management in terms
• 5:53
  Speaker 1: of asset flows versus passive because investors are looking at
• 5:56
  Speaker 1: their statements the last couple of years and saying, wait
• 5:58
  Speaker 1: a second, all right, I'm paying fifty basis points less
• 6:01
  Speaker 1: on fees, but I just gave up five hundred basis
• 6:03
  Speaker 1: points in relative performance. Maybe maybe there's a place where
• 6:07
  Speaker 1: where both of these strategies can coexist. Phill Orlando, you
• 6:11
  Speaker 1: still have a thirty one hundred price target for the
• 6:14
  Speaker 1: SMP five hundred twelve months out. Yes, we twelve months out. Okay,
• 6:17
  Speaker 1: so we're twenty three let's say right now, Well you're
• 6:21
  Speaker 1: you're just under all right, we bottom to right around Christmas.
• 6:28
  Speaker 1: What I'm telling you is we just rallied ten percent
• 6:30
  Speaker 1: up to what we think as a resistance level of hundred.
• 6:34
  Speaker 1: I think over the next two months we could absolutely
• 6:37
  Speaker 1: retrace that level. Let's call it back in that. I
• 6:40
  Speaker 1: think we're gonna retestred because of concern about BREGSIT and
• 6:44
  Speaker 1: the FED and China and the government shut down and
• 6:47
  Speaker 1: and and the stuff that Lesa just talked about with
• 6:50
  Speaker 1: the layoffs and whatever, is the labor market at at
• 6:52
  Speaker 1: risk um And then I think is as we get
• 6:55
  Speaker 1: through this first quarter and in my opinion, get some
• 6:58
  Speaker 1: positive clarity on some of these issues that I think
• 7:00
  Speaker 1: investors say, well, wait a second, we just contracted multiples
• 7:05
  Speaker 1: from eighteen times earnings to fourteen times earnings because we
• 7:08
  Speaker 1: thought the economy was about to roll in a recession.
• 7:10
  Speaker 1: That's not happening. Inflations two percent, Treasury yields are at
• 7:14
  Speaker 1: two point seven percent. We need to get multiples back
• 7:17
  Speaker 1: to eighteen times earnings, and that multiple expansion with a
• 7:21
  Speaker 1: little bit of earnings gain maybe five or six percent
• 7:23
  Speaker 1: this year, is going to give us a nice rally
• 7:25
  Speaker 1: in the last nine months of the year. So just
• 7:27
  Speaker 1: in thirty seconds here, what were you buying with most
• 7:29
  Speaker 1: conviction in the December sell off? I think energy and
• 7:33
  Speaker 1: emerging markets are the things that look most interesting to
• 7:36
  Speaker 1: us here over the last couple of weeks. Energy stocks
• 7:38
  Speaker 1: and emerging market stocks in any particular nations. Uh No,
• 7:43
  Speaker 1: I'm not that smart. Come on, you don't give yourself
• 7:47
  Speaker 1: enough credit. Fil I love your insights. It's always a
• 7:50
  Speaker 1: wonderful speaking with you, and I like the polishness, and
• 7:53
  Speaker 1: honestly there is a question, especially if President Trump really
• 7:57
  Speaker 1: is using the stock market is a gauge of his
• 8:00
  Speaker 1: success that he will do everything that he wants to
• 8:02
  Speaker 1: do and can do to keep it up. So there
• 8:05
  Speaker 1: is that also tail tailwind that is potentially boosting markets
• 8:09
  Speaker 1: as well. Philip phil Orlando, thank you so much for
• 8:11
  Speaker 1: being with us, Phil Orlando's chief equity market strategistic Federated Investors.
• 8:31
  Speaker 1: The minutes from the December Federal Reserve meeting indicated a
• 8:35
  Speaker 1: willingness to wait, a sort of devilish tilt that has
• 8:39
  Speaker 1: given some markets some confidence. Joining us now as Steve Blitz,
• 8:42
  Speaker 1: chief US economist for Ts Lombard uh and he joins
• 8:46
  Speaker 1: us now my phone, thank you so much for being
• 8:48
  Speaker 1: with us. I'm just wondering, from your perspective, do you
• 8:52
  Speaker 1: think that the Federal Reserve will hike rates again this year? No?
• 8:57
  Speaker 1: I don't, and first of all, happy to do you everybody. Um, No,
• 9:02
  Speaker 1: I don't. I don't. I don't think they're gonna hike
• 9:04
  Speaker 1: because I think you know, you always get this very
• 9:06
  Speaker 1: interesting uh fedspeak which which has at the moments this
• 9:12
  Speaker 1: notion that the asset markets of pricing one world and
• 9:15
  Speaker 1: the economy is a different world. When we all know
• 9:18
  Speaker 1: that asset prices determine economic activity, it's how monetary policy works.
• 9:25
  Speaker 1: What has occurred to date, especially in terms of the
• 9:29
  Speaker 1: curve and the fixed income markets in the treasury markets
• 9:33
  Speaker 1: will knock the average growth rates for the year below trends,
• 9:38
  Speaker 1: So let's call it one and a half two percent.
• 9:41
  Speaker 1: And in that environment, Uh, there's no reason why the
• 9:45
  Speaker 1: Fed would increase rates. Steve Blitz, do you believe that
• 9:49
  Speaker 1: the Federal Reserve fully understands and concurs with the notion
• 9:54
  Speaker 1: that economic growth is dependent as well as the direction
• 9:58
  Speaker 1: of asset prices, is the on their monetary actions? Well,
• 10:03
  Speaker 1: it's it's it's it's it's a great question. Um. The
• 10:06
  Speaker 1: short answer that question is obviously yes, Otherwise what are
• 10:09
  Speaker 1: they doing? Um? But when you look at the minutes
• 10:15
  Speaker 1: and they talk about what are the risks to growth? Uh,
• 10:18
  Speaker 1: they put monetary policy about fourth and first is what's
• 10:22
  Speaker 1: happening in the global economy, and second is the shift
• 10:26
  Speaker 1: from stimulus to a lack of stimulus, to drop off
• 10:29
  Speaker 1: of the stimulus from the from the from the federal deficit.
• 10:33
  Speaker 1: So those two factors in and of itself, UH is
• 10:37
  Speaker 1: number one and number two, and then they get into
• 10:39
  Speaker 1: other things. So UM, at the moment they're seeing their
• 10:44
  Speaker 1: policies somewhat benign, I disagree with them, and I think
• 10:48
  Speaker 1: the reason they first of all, they see that is
• 10:51
  Speaker 1: because they're looking at the level of nominal rates against
• 10:54
  Speaker 1: growth in the economy and they're saying, you know, money
• 10:56
  Speaker 1: is still cheap, you know, to an a percent funds
• 10:59
  Speaker 1: rate against or odd percent nominal growth in GDP, but
• 11:04
  Speaker 1: you have to look at it as an adjustment. You've
• 11:06
  Speaker 1: gone from ten years of zero rates to the money
• 11:11
  Speaker 1: markets being a viable asset, and ten years is a
• 11:15
  Speaker 1: long time. There's a lot of habits, both on the
• 11:18
  Speaker 1: borrowing and the investing side. UM that reflects zero rates.
• 11:22
  Speaker 1: And last September when the funds rate went over too,
• 11:25
  Speaker 1: and we know from behavioral finance, people don't react continuously.
• 11:29
  Speaker 1: They act react and discrete steps, and that discreet step
• 11:33
  Speaker 1: was when we got a two handle on funds and
• 11:36
  Speaker 1: all of a sudden, UH as the old expression is
• 11:39
  Speaker 1: the dime dropped UM, and that would have to be
• 11:42
  Speaker 1: an expression that people haven't been in the market more
• 11:45
  Speaker 1: than ten years wouldn't know. Well, let's let's talk about
• 11:47
  Speaker 1: the balance sheet, because this is where the focus is turning.
• 11:49
  Speaker 1: The four trillion dollars of assets on the reserves balance sheet.
• 11:53
  Speaker 1: What do you expect them to do with that? How
• 11:54
  Speaker 1: much is that really affecting? Uh? That the sort of
• 11:57
  Speaker 1: shrinking of it, How much is it actually affecting markets
• 11:59
  Speaker 1: right now? Well, I think there's two parts of that
• 12:02
  Speaker 1: balance sheet that are that are up for discussion. Okay,
• 12:05
  Speaker 1: so one which was in the minutes, and I'm gonna
• 12:08
  Speaker 1: do not dismisses, but just put that aside. And I
• 12:10
  Speaker 1: don't think it's relevant to this discussion, which is the
• 12:13
  Speaker 1: impact of shrinking the balance sheet and the internal plumbing
• 12:18
  Speaker 1: of bank funding. Uh, it's an issue, and does the
• 12:21
  Speaker 1: fundering mean anything anymore? And all these things, But that's
• 12:25
  Speaker 1: that's It's an issue the contingency planning. It's important, but
• 12:29
  Speaker 1: it's not important at the moment. And what's important at
• 12:32
  Speaker 1: the moment is that the SET is stepping away from
• 12:35
  Speaker 1: buying billions of treasuries this year plus whatever. The banks
• 12:40
  Speaker 1: are pulling themselves out of the out of reserves and
• 12:44
  Speaker 1: transferring it elsewhere, which means that the SET has to
• 12:47
  Speaker 1: adjust their assets by selling an effect more treasuries, although
• 12:51
  Speaker 1: they not really selling. But in any eventlet's to say,
• 12:54
  Speaker 1: selling doesn't make it easier um at a time when
• 12:58
  Speaker 1: you have a doubling of the deficit, and that means
• 13:02
  Speaker 1: that the private markets have to not only accommodate and
• 13:06
  Speaker 1: for what the treasury is selling, but for what the
• 13:10
  Speaker 1: is not buying. And that's what has the markets have
• 13:14
  Speaker 1: been spooked. And if you'll notice with the drop in
• 13:18
  Speaker 1: yields UH at the determent level that terms to them
• 13:22
  Speaker 1: into ten years, even five to ten, your yields, the
• 13:25
  Speaker 1: real yields haven't gone down that much. The inflation premiums
• 13:28
  Speaker 1: dropped a lot, and the real yield has stayed up
• 13:30
  Speaker 1: because you need to attract that capital to buy treasuries.
• 13:35
  Speaker 1: So I think it means a lot. And I think
• 13:38
  Speaker 1: that it was telling that when Powell was at the
• 13:42
  Speaker 1: A e A last Friday, and we'll hear what he
• 13:45
  Speaker 1: has to say today if he if he reiterates the
• 13:47
  Speaker 1: comments or expands upon them. When he was for the
• 13:50
  Speaker 1: first time, he said, look if and he said it
• 13:54
  Speaker 1: in the context of treasury issuance, that in the context
• 13:59
  Speaker 1: of treasury is uns if they think that the Fed matters,
• 14:03
  Speaker 1: that the balance sheet policies matter, they will adjust their policies.
• 14:07
  Speaker 1: And I think that, and I know we have limited time,
• 14:11
  Speaker 1: but I think that the first step that said it's
• 14:13
  Speaker 1: gonna make is they're gonna paper, not end, but they're
• 14:16
  Speaker 1: gonna taper the pace of QT and they'll get a nice,
• 14:20
  Speaker 1: you know, pr benefits from that, and maybe they go
• 14:23
  Speaker 1: in and instead of buying seven to ten your paper,
• 14:26
  Speaker 1: maybe they buy some bills to try and get a
• 14:28
  Speaker 1: little steepness back into the curve. Thanks very much for
• 14:32
  Speaker 1: being with us. Steve Blitz is chief economist at T S.
• 14:36
  Speaker 1: Lombard speaking about the Federal Reserve and US interest rates.
• 14:55
  Speaker 1: The retail picture not very nice today for investors. AC
• 15:00
  Speaker 1: shares down about eight. Matt Townsend joins us here in
• 15:04
  Speaker 1: our Bloomberg Interactor Broker Studios. Matt is our global business
• 15:07
  Speaker 1: reporter for Bloomberg News, and you can follow Matt on
• 15:11
  Speaker 1: Twitter at Matt underscore Townsend. Okay, Matt underscore Townsend. I
• 15:16
  Speaker 1: thought that the holiday shopping season was supposed to be
• 15:19
  Speaker 1: gangbusters and everything's gonna be right for the retail industry.
• 15:24
  Speaker 1: That that's why this reaction is so you know, Steep,
• 15:27
  Speaker 1: I mean, the story going into this was, yes, this,
• 15:30
  Speaker 1: this is gonna be a robust holiday season, maybe the
• 15:33
  Speaker 1: best of the recovery. You know last year was was
• 15:35
  Speaker 1: basically the best of their coming to that point. So,
• 15:39
  Speaker 1: you know, investors had this idea baked in that this
• 15:41
  Speaker 1: is gonna be a good holiday. Retailers opposed to good results,
• 15:44
  Speaker 1: results have been good throughout the year. Macy's comes out
• 15:47
  Speaker 1: and says, our sales were weak. We're cutting our earnings
• 15:51
  Speaker 1: forecast or earnings guidance, and the whole market sells off.
• 15:55
  Speaker 1: So the investors are just pouring out of retail stocks.
• 15:57
  Speaker 1: So what I'm wondering is our investors overreacting to an
• 16:02
  Speaker 1: idiosyncratic issue with Macy's. Considering the fact that the guidance
• 16:07
  Speaker 1: wasn't that bad for Target and bed Bath and beyond
• 16:10
  Speaker 1: even guided upwards, Investors basically are saying, we don't believe you. Yeah,
• 16:14
  Speaker 1: that's the question. Is this a department store issue? Coals
• 16:18
  Speaker 1: Another department store had an underwhelming report on their holiday sales.
• 16:24
  Speaker 1: Um you know, the thing about Target, which some of
• 16:27
  Speaker 1: the analysts were calling out was yes, they had this
• 16:29
  Speaker 1: five percent growth, but they didn't raise their their guidance
• 16:33
  Speaker 1: for the fourth quarter. They didn't say anything about profits.
• 16:35
  Speaker 1: So you know, every holiday there's this big battle between
• 16:40
  Speaker 1: you go after sales or do you protect profits. So
• 16:42
  Speaker 1: if you after sales but hurt your profit, investors are
• 16:44
  Speaker 1: gonna hit you there. If you don't hit on sales,
• 16:45
  Speaker 1: they're gonna hit you there. So, yes, this is raiding,
• 16:48
  Speaker 1: raising red flags in the investment community that maybe the
• 16:51
  Speaker 1: holiday isn't as good as expected, and consumers that maybe
• 16:54
  Speaker 1: are ready to pull back on their spending. Potentially. Well,
• 16:57
  Speaker 1: if you look at all of the websites of these
• 16:59
  Speaker 1: major retailers, they are all offering discounts and sales of
• 17:03
  Speaker 1: up to twenty That kind of matches the decline in
• 17:07
  Speaker 1: the stock of Macy's today. I mean Macy's is offering
• 17:10
  Speaker 1: an extra off, an extra fift off. I mean, if
• 17:14
  Speaker 1: they've trained the customer to wait for sales and to
• 17:17
  Speaker 1: wait until prices are cut, what hope do they have
• 17:20
  Speaker 1: of maintaining those margins? Right, That's one of the things
• 17:23
  Speaker 1: we were talking about this morning is shoppers are so
• 17:26
  Speaker 1: savvy now. They know all the prices, they know all
• 17:28
  Speaker 1: the promotions, and they do know how to use mobile phones.
• 17:32
  Speaker 1: Do not. They know how to compare and contrast. So
• 17:36
  Speaker 1: you're a lot of a lot of shoppers do wait
• 17:40
  Speaker 1: till the end for for discounts or sales. They're very savvy. Um,
• 17:44
  Speaker 1: you know, but just back to department stores. You know,
• 17:47
  Speaker 1: one of the things if if people are shifting for
• 17:49
  Speaker 1: their purchases from department stores to say a Target. You know,
• 17:53
  Speaker 1: we don't know Walmart what Walmart yet did yet, so
• 17:55
  Speaker 1: maybe Walmart did well. You know, that's also a potential
• 17:58
  Speaker 1: sort of negative sign for the con to me if
• 18:00
  Speaker 1: the trading down effective shoppers are going from a department
• 18:03
  Speaker 1: store shopper to a discount shopper. So can you just
• 18:06
  Speaker 1: give us some perspective here? Have we heard enough to
• 18:10
  Speaker 1: know that, yes, Macy's will be a bell weather for
• 18:13
  Speaker 1: retailers in the first quarter, We have not um when
• 18:17
  Speaker 1: the dust settles, when they all all these companies report
• 18:20
  Speaker 1: the fourth quarter earnings, which won't be until February because
• 18:23
  Speaker 1: their quarters weren't through January. That's when we'll really know, um.
• 18:27
  Speaker 1: And so this could just be you know, Macy's and
• 18:31
  Speaker 1: Cole's did not have good court good holidays, but best
• 18:35
  Speaker 1: Buy Walmart did really well. Some of these other chains.
• 18:38
  Speaker 1: Obviously there's Amazon, we know that obviously do our a
• 18:41
  Speaker 1: big holiday player. So you know, we'll see the story
• 18:44
  Speaker 1: is not written at this point. Taking a look at
• 18:46
  Speaker 1: Costco for example, Costco host sale same store sales in
• 18:50
  Speaker 1: December up seven and a half percent. That was the
• 18:56
  Speaker 1: same store sales for the total company that was U
• 18:58
  Speaker 1: S stores. So the total company up six. Stock is
• 19:02
  Speaker 1: basically unchanged. So maybe they got it right and Macy's
• 19:05
  Speaker 1: got it wrong right again. Costco a discount play. Um,
• 19:08
  Speaker 1: you know, that's that's what we saw in the in
• 19:10
  Speaker 1: the last recession. Um was you know, there was this
• 19:14
  Speaker 1: sort of deterioration among the sort of middle income retailers. Uh,
• 19:20
  Speaker 1: and then you know, consumers a little more worried about
• 19:22
  Speaker 1: their finances, shifting down to the discounters, dollar stores, things
• 19:26
  Speaker 1: like that. I think what it does do is it
• 19:29
  Speaker 1: casts some high skepticism on all the claims about how
• 19:32
  Speaker 1: the holiday season was fantastic. And I think that that
• 19:35
  Speaker 1: perhaps is the big takeaway. So a little bit more
• 19:38
  Speaker 1: caution heading into the earning season. All off all coats
• 19:44
  Speaker 1: at Macy's and I believe if you're you know, going
• 19:46
  Speaker 1: to rush out Matt Townsend fifty eight five off four
• 19:52
  Speaker 1: men swear well, good to know we'll let you go
• 19:54
  Speaker 1: off and shop because that's what you do at your
• 19:56
  Speaker 1: desk all day. I'm sure not at all. He is
• 19:59
  Speaker 1: a very hard working quarter. Matt Town's end for Bloomberg News.
• 20:02
  Speaker 1: Joining us here in our Bloomberg Interactive Broker's studios. Crude
• 20:22
  Speaker 1: oil today falling after a string of increases. The value
• 20:26
  Speaker 1: of crude on the n Imax fifty two dollars thirteen
• 20:29
  Speaker 1: cents for a barrel of crude. That's a decline of
• 20:31
  Speaker 1: about a half of percent. Here to help us understand
• 20:34
  Speaker 1: what's going on in the world of fossil fuel, Stephen Short.
• 20:37
  Speaker 1: He is the president of the Short Group. Stephen. It's
• 20:40
  Speaker 1: always a pleasure to have you with us. What do
• 20:43
  Speaker 1: you think the price of oil is going to be
• 20:46
  Speaker 1: at the end of the month that we're staying around
• 20:48
  Speaker 1: fifty a barrel? Yes, I don't see him us going
• 20:53
  Speaker 1: significantly higher. Perhaps we can make a four ray into
• 20:56
  Speaker 1: the midst fifties. Keep in mind that we had a
• 20:59
  Speaker 1: significant sell off at the end of where spot prices
• 21:02
  Speaker 1: got down to about forty two, so we're a solid
• 21:05
  Speaker 1: ten dollars of barrel higher we're pretty much now at
• 21:09
  Speaker 1: the bottom of the market. That is to say, I
• 21:11
  Speaker 1: think that forty two dollar number was overdone. You had
• 21:15
  Speaker 1: a significant amount of psychological factors pushing all markets lower,
• 21:20
  Speaker 1: and I think crewdal just fell in sympathy with everything else.
• 21:23
  Speaker 1: So the market obviously got way too low at forty two.
• 21:27
  Speaker 1: At fifty two fifty five, when we look at the
• 21:29
  Speaker 1: economics of pulling a barrel out of the oil generally
• 21:32
  Speaker 1: in here in North America, you're essentially at the bottom.
• 21:36
  Speaker 1: The concern now going forward why we'll probably see a
• 21:39
  Speaker 1: cap on prices for at least the next two months
• 21:41
  Speaker 1: PIM is that demand for crudal and now is strong,
• 21:45
  Speaker 1: but in the months ahead and certainly by the end
• 21:47
  Speaker 1: of the first quarter, demand will be significantly lower because
• 21:51
  Speaker 1: refineries here in North America and Northern Europe will go
• 21:54
  Speaker 1: into their maintenance season, so they'll begin buying fewer barrels
• 21:58
  Speaker 1: on the spot market of crew all, which should lead
• 22:01
  Speaker 1: to some overhang going into the second quarter. I'm just wondering,
• 22:06
  Speaker 1: why have analysts gotten oil so wrong? What is the
• 22:09
  Speaker 1: big variable that people keep underestimating with oil? Uh with
• 22:14
  Speaker 1: boiled right, That's an excellent question. A Lisa, and I
• 22:17
  Speaker 1: think us certainly with regard to UH oil. It's similar
• 22:22
  Speaker 1: to what in natural gas, where we tend to look
• 22:25
  Speaker 1: solely on the supply side. So we I think at
• 22:29
  Speaker 1: this point we put too much weight on the impact
• 22:32
  Speaker 1: of OPEC part of the run up that we saw
• 22:36
  Speaker 1: back in September. We keep in mind that we had
• 22:38
  Speaker 1: about a ten dollar rally in September, which is at
• 22:41
  Speaker 1: the weakest demand part of the month, on speculation of
• 22:45
  Speaker 1: what depending Iran UH sanctions which went into effect on
• 22:49
  Speaker 1: the November one, we're going to impact the market. So
• 22:52
  Speaker 1: we're always looking at the supply side UH, and we
• 22:55
  Speaker 1: tend to ignore the demand side, and I think e
• 22:58
  Speaker 1: gauging demand, whether it's an oil and natural gas, that
• 23:01
  Speaker 1: is really the art UH to forecasting right now, and
• 23:05
  Speaker 1: similar to a natural gas where I think too many
• 23:08
  Speaker 1: forecasts took into consideration record production and completely ignored the
• 23:13
  Speaker 1: fact that demand was keeping pace with that production. Do
• 23:16
  Speaker 1: you believe that Saudi production will remain at its current level?
• 23:21
  Speaker 1: I do. I think I will have to. If not,
• 23:24
  Speaker 1: they will have to put more barrels on the market. UH.
• 23:27
  Speaker 1: The US perhaps now is producing as much as twelve
• 23:30
  Speaker 1: million barrels a day, which is by far the largest
• 23:33
  Speaker 1: producer in the world. I do not expect to see
• 23:36
  Speaker 1: any sort of significant pullback in that production, even down
• 23:40
  Speaker 1: at these levels, given that last summer production for you
• 23:45
  Speaker 1: had the ability of at least two months to hedge
• 23:48
  Speaker 1: at seventy barrel So I do believe we have a
• 23:51
  Speaker 1: significant amount of future production that's already been sold at
• 23:55
  Speaker 1: these levels. So those producers will have to continue to
• 23:58
  Speaker 1: produce to offset those sharpest editions in the future market.
• 24:01
  Speaker 1: So Saudi really cannot up production. I think at a
• 24:04
  Speaker 1: minimum they will maintain production, if not have to pull
• 24:08
  Speaker 1: production out of the market. Given the strong response by
• 24:11
  Speaker 1: US up product producers. Yeah, it's sort of interesting. You're
• 24:14
  Speaker 1: talking about how people are overestimating opaque. I'm wondering what's
• 24:18
  Speaker 1: the perfect price for US producers, US producer right now.
• 24:24
  Speaker 1: Keep in mind, when everyone was under the assumption at
• 24:28
  Speaker 1: the end of that year that Saudi Arabia was trying
• 24:31
  Speaker 1: to derail North American production. I said it then, and
• 24:34
  Speaker 1: I've said it ever since, and I'll continue to say it.
• 24:36
  Speaker 1: Saudi was not trying to destroy US production, because they
• 24:39
  Speaker 1: couldn't destroy US or Canadian production. Uh, So that said,
• 24:43
  Speaker 1: what Saudi Arabia actually did in was give the industry
• 24:47
  Speaker 1: a shot in the arm and did all the heavy
• 24:50
  Speaker 1: lifting that the FEDS cheap capital UH created that bubble.
• 24:54
  Speaker 1: So now where I'm getting out here is that US
• 24:56
  Speaker 1: producers are much more profitable at level levels given the
• 25:00
  Speaker 1: efficiencies they've created over the last three years. So at
• 25:03
  Speaker 1: a minimum, depending on the play, you can make money
• 25:06
  Speaker 1: with oil as low as twenty five dollars a barrel,
• 25:09
  Speaker 1: thirty five dollars a barrel. But if you're going to
• 25:11
  Speaker 1: take a blended price, I would think to say that
• 25:14
  Speaker 1: we are at these levels. Looking at my Bloomberg at
• 25:16
  Speaker 1: oil right around fifty two dollars a barrel, we're pretty
• 25:19
  Speaker 1: much at the bottom of the market. You would want
• 25:22
  Speaker 1: to see oil back to where we saw it back
• 25:24
  Speaker 1: in September, up around that sixty level, and that would
• 25:29
  Speaker 1: certainly be a sweet spot for US producers. Stephen short
• 25:32
  Speaker 1: in about twenty seconds. Do you believe that the gasoline
• 25:35
  Speaker 1: shortage in Mexico is going to have any effect on
• 25:38
  Speaker 1: the price of oil? Uh? No, I don't actually pim
• 25:43
  Speaker 1: at this point. Uh. I don't think the Mexican uh
• 25:47
  Speaker 1: shortage at this point will have much of an impact,
• 25:50
  Speaker 1: especially given that gasoline supplies here in the United States
• 25:53
  Speaker 1: are at an all time high and that will continue
• 25:56
  Speaker 1: through the first quarter. Thank you so much for being
• 25:58
  Speaker 1: with us. Oil definitely an important topic right now because
• 26:01
  Speaker 1: it's also been a driver in inflation expectations as as
• 26:05
  Speaker 1: we've seen oil rebounds, so to have five year inflation
• 26:09
  Speaker 1: expectations which have had their best four day rally in
• 26:12
  Speaker 1: a very long time. Stephen Short, thank you so much
• 26:14
  Speaker 1: for being with us, President of the Short Group. Thanks
• 26:20
  Speaker 1: for listening to the Bloomberg p m L podcast. You
• 26:23
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 26:27
  Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
• 26:30
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 26:35
  Speaker 1: It's one before the podcast. You can always catch us
• 26:37
  Speaker 1: worldwide on Bloomberg Radio.