February 17, 2025 • 38 mins
On this special holiday edition of Bloomberg Daybreak US edition, host Nathan Hager speaks with Stephen Schork, founder of the Schork Group, shares his outlook for the energy sector and the oil industry, Eric Balchunas, Bloomberg Intelligence analyst on the market outlook under a new Trump administration and Arun Sundaram at CFRA looks ahead to Walmart earnings.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:10):
Thanks for joining us on this special holiday edition of
Bloomberg Daybreak. US markets are closed for President's Day. I'm
Nathan Hager, and coming up this hour, we will get
a read on the energy market after a winter that
has seen wild swings in the weather, and on trade.
Plus we'll look ahead to one of the biggest earning
stories of the week as Walmart gets set to report
(00:31):
results from the holiday quarter. First, though, we want to
take a look at the broader investment landscape how it
may be changing with a new president in office. I
think it's pretty safe to say it was a pretty
tough environment as far as regulation goes when Gary Gensler
was head of the Securities and Exchange Commission under then
President Joe Biden. Now with a new SEC chief on
(00:52):
the way under current President Donald Trump, are things starting
to change for investors? Let's get some answers on this.
Joining us on this holiday is Eric Balchunis, ETF, analyst
for Bloomberg Intelligence. Thanks so much for being with us
on the holiday. Eric, and I know we've got a
lot of acting commissioners acting chiefs on the way as well,
(01:13):
But are things starting to change now as far as
where things sit in your world and ETFs.
Speaker 3 (01:19):
Uh.
Speaker 1 (01:20):
Yeah, There's been a couple of small things that we've seen,
nothing major, But I think one of the big things
is esther purse, which she was a commissioner. She is
a commissioner, and she was in the minority during the
Gensler era and she had a lot of opposing opinions
that she would write about. And now she's working one
of the two commissioners of the Act, is helping the
acting commissioner. And some of the things we've seen, for example,
(01:42):
they approved options on some precious metals ets that have
been waiting ten years. It's a minor thing, but it
just shows I think she just wants to get stuff
out the door in the end. You know, she was
very big on the SEC being a merit based regulator meeting.
You just want to get the disclose out and then
let the consumers pick. You don't want to play nanny
(02:05):
too much in sort of saying.
Speaker 3 (02:06):
This is bad, this is good.
Speaker 1 (02:08):
So I think what you're going to see is just,
you know, a little bit of Pandora's box opening up
with products and I think some will be really good
and successful. Some are going to be a little wild
and we'll cause some head scratching maybe, but this is
the ETF industry always pushes the envelope, and they're just
gonna be able to push a little further. I think
under this SEC chair, who hasn't been confirmed yet, but
assuming he is Atkins, he'd be working obviously with Hester Purse.
(02:32):
And the other thing they did was they moved a
bunch of people who were on a crypto fraud. They
moved some people out of that team, and that again
was another sign that in terms of the crypto, which
was I think Gensler is like you know, he was
both known for being tough on that. It's going to
be more lenient for sure. I would look for a
ton of new coins and tokens to be etfised, and
(02:55):
I would look for the industry also to push the
envelope and some other things like share classes and maybe
even some things like trying to put private equity and
private credit into ETFs.
Speaker 3 (03:07):
Knowing they have a more liberal regulator.
Speaker 1 (03:10):
I mean, the regulator is more conservative, but I'd say
they're more liberal in terms of what they'll approve.
Speaker 2 (03:14):
Well, let's dig into those broad strokes just a little bit.
What kinds of products are you looking forward to that
could find some success among investors.
Speaker 1 (03:26):
Yeah, so I think the first two are ets tracking
Solana and XRP, which are two different networks. They're cryptocurrencies,
and those two in particular have been the industry has
been trying to get those approved for like five years.
And even though Gary Gensler approved Bitcoin and ether, he
(03:47):
basically said everything outside of that is a security and
therefore it cannot be put into an ETF under the
thirty three Act. And they even called XRP and Solana
securities in lawsuits. And so the fact that the Salana
ETF was acknowledged recently there was a new filing. They
got acknowledged. They never acknowledged one of the pasts. Acknowledged
(04:07):
just means the sec is like, Okay, we know you filed.
We're going to let people comment on it. It's part
of the normal process. In the past, when someone tried
to follow Solana or XRP ETF, they would literally call
the issuer and say get this out of here. It
wouldn't even last three days. But this they've been filed
now for two weeks. They've been acknowledged they're moving along
the normal past. Doesn't mean to be approved, but it's
(04:28):
a good sign. That probably indicates that they may actually
rescind some of the lawsuits, because it would be weird
for them to approve these while having a lawsuit and
saying and writing that these are securities. So that's something
to watch right there. And if Solana and XRP are
put into ETF form, they have I think a decent
chance to get some assets. Now, once you get out
(04:48):
of there, you're going to get into some weird stuff
like dose coin, Polka Dot bonk. They even filed for
a trump Coin ETF, a Milania ETF, and a double
leveraged Malania. So here's the thing though, even if all
that gets out, most of it will just live in oblivion.
I think you've got think about the precious metals. Gold
(05:09):
is the stud, Silver's got a good living, platinum, pladium,
And then once you get to commodities like coffee, nickel, aluminum,
some ETFs are tried and failed. I think you'll see
the same thing here. I think Bitcoin will get like
seventy five percent of the assets, Ether ten percent, and
then XRP Solana will you know, fight over the other
(05:30):
eight or nine percent, and then we'll see one wacky
one get lucky for a minute, and then you know,
rise and fall. So I think even though we will
see a ton of stuff approved, most of the assets
from the big money in America are they're not going
to go crazy. They're gonna stick to bitcoin as they're
that's crazy to most people, to be honest. So they're
gonna stick to bitcoin, and that's where most of.
Speaker 3 (05:51):
The assets will go.
Speaker 1 (05:52):
But look for some really interesting things. And the thing
about a Trump and Malania coin etf is I was
that this was going to be interesting, is that these
are pretty fringe.
Speaker 3 (06:01):
I mean, they just launched.
Speaker 1 (06:02):
It made clear to everybody that the Trump coin was
you know a lot of even if the crypto people
didn't like it. It kind of they call it a
rug pull. You know, you put a meme coin out
and then all of a sudden, the people who started
leave and then the people who came in late.
Speaker 3 (06:16):
Hold the bag. It's like, you know, kind of a
short term Ponzi effect.
Speaker 1 (06:19):
Now that's Trump is the boss of the sec chair,
so it'd be weird if you didn't approve a coin
based on his coin, given that he's the boss that.
Speaker 3 (06:29):
Isn't the work.
Speaker 1 (06:30):
It all gets a little It's going to be interesting
to see how they deal with this, because we do
think some of the main coins will be approved. But
once you get to this really outskirtsy meme coin world,
will the.
Speaker 3 (06:41):
SEC just sort of let it out?
Speaker 1 (06:43):
That's a question we don't quite know, but if I
had to guess now, I'd lean towards they've probably let
most stuff out. But for people worried about how this
will be bad, most of this stuff will be ignored
by investors.
Speaker 2 (06:56):
Speaking with Eric Balchuna's ETF analysts for Bloomberg Intelligence, Eric,
if we're expecting these kind of approvals, what are you
expecting when it when it comes to enforcement of some
of the potential risks around some of these new products.
Speaker 1 (07:11):
This is where the big debate on what should the
SEC behold Should it really police the products, invest them
and say is this really safe for retail?
Speaker 3 (07:22):
It's sort of I guess like the FDA, at.
Speaker 1 (07:24):
Some point, you know, there's a line between what is
safe versus Hey, let's just disclose all risks and let
people have a choice and they if they want to,
you know, you know, if someone wants beat McDonald's every day.
It's really their choice, even though that's not healthy, and
you could argue the government should ban McDonald's. But this
is the same deal. And I think this sec with
(07:46):
this chair is going to be a little more like, look,
just let this stuff out, let people choose, but just
we're going to put a lot of the risks in
the perspectives. Now nobody reads the perspectives, that's the problem.
But I think most people if they see a two
X Smulania ETF, they're probably going to know it's wacky,
like they're going to know there's some that it's not vanguard. Okay,
(08:08):
But this whole thing is why we and BI have
something called the traffic light. It's based on movie ratings.
I always thought ETSD movie ratings that way, you know,
if the name sounds innocent, maybe you know, you know,
if the if the ETF has some stuff you need
to know about, you know, just sort of like a
nasty surprise indicator system. And so we would give most
(08:29):
of these yellow lights. The two X millennia would be
read because it's leverage. One ex millenni would be yellow
because its kind of extra volatility, and there's really no
cash flows backing any of this. It's like just it's
like a commodity. So I just think that would be
helpful for investors to have. Like imagine if you went
on your Schwab account, you pulled up any ticker and
(08:50):
it said you know, rated g PG, PG thirteen or R.
You get a very good idea of like, okay, if
this is our y and here's the three reasons they
got rated R tag. To me, that would be awesome.
We try to create this. We did create the system.
It's on the terminal. But that's I think how you
should think as an investor if you're looking at this stuff.
If it sounds wacky, you know, read the fine print.
(09:12):
If it sounds innocent, like the Vanguard is some P
five hundred, that probably is. But every now and then
there are some with innocent names that are a little
more involved, like the oil ETF. But I think most
of these are.
Speaker 3 (09:23):
Going to sound wacky, and they are wacky, so but
always I would read the perspectives if you can. And
that's what the SEC is going to say.
Speaker 1 (09:31):
Just put all this stuff, all the risks in the documents,
and that's that's the kind of you know, because they
want innovation, and they want things to be out there
for consumers. But there is a point where you can
put something out that, you know, is somebody could lose
money on. But I you know, this is again the
debate on what a regulator should be.
Speaker 4 (09:51):
Eric.
Speaker 2 (09:51):
Now that we do have a new administration in office,
have you seen some interesting shifts in ETF flows now
the there's new leadership in the White House.
Speaker 3 (10:02):
Yeah, it's interesting.
Speaker 1 (10:04):
You know, I think ETF investors over the years, you know,
we wrote a piece saying the S and P five
hundred doesn't care who.
Speaker 3 (10:10):
The president is.
Speaker 1 (10:12):
It's almost like the US stock market. We call it
the eighth Wonder of the World because it's just so relentless.
It's almost like immune to any of this. And I
think over the years, even if there has been drama
and maybe a pullback, it goes right back up. And
so we have seen no change in the flows from
like last summer into fall, into the winter into this
(10:36):
twenty twenty five. It's it's basically been a lot of
people continue to buy what we call beta, the S
and P five hundred, the bond ETFs, you know, the
sixty forty people are just continuing to buy now on
the fringes. There is some stuff that we see moving, like,
for example, in the bond space, we do see people
moving towards the shorter end of the curve, more towards
(10:57):
like a money market type deal, and I think that's
a little protection. We've seen obviously money go into the
bitcoin ets and some into gold. There's some thought that
that is, you know, an inflation hedge. And then the
stock market. Sometimes we'll see some flow like try to
bet on small caps having a rebound or.
Speaker 3 (11:19):
Europe, but those are usually short lived.
Speaker 1 (11:22):
So you do sometimes see people trying to bet on
some kind of a rotation or regime change.
Speaker 3 (11:27):
So again they're on the outskirts.
Speaker 1 (11:29):
We see bets being made, but for the most part,
the sort of mainstream flow of money continues to buy
us stocks, you know, at a breakneck pace, and it's
going to take more than just like a you know,
a scary tariff headline to get these ETF investors to
to change direction. And you know, and why would they.
(11:53):
They've they've almost been conditioned like Pavolovian dogs to just
keep buying because it's worked out.
Speaker 3 (11:58):
If you've ever read a.
Speaker 1 (12:00):
Scary headline pulled your money out put in cash.
Speaker 3 (12:02):
You're basically filled with a ton of regret.
Speaker 1 (12:06):
And so this is where we're at. Why I think
that it will take like a black Swan event in
my opinion, to really see anything shift, something like the
COVID something we're not not tariffs, you know, not a
crazy tweet Like it has to be something like really
major that nobody's even looking at in my opinion, for
the general blob of money to like stop investing or
(12:30):
to move out of stocks.
Speaker 2 (12:31):
Really appreciate this. Eric, thanks again for coming on with us.
Speaker 3 (12:34):
You got it anytime.
Speaker 2 (12:35):
That's Eric Baluchunis ETF, analyst for Bloomberg Intelligence, and coming
up next on the special holiday edition of Bloomberg Daybreak,
we're going to take a look at the oil market
how that may be shifting under the new administration. We'll
be speaking with Stephen Schork, president of the Short Group.
It's twenty minutes past the hour. I'm Nathan Hager, and
this is Bloomberg. Welcome back to this special holiday edition
(13:03):
of Bloomberg Daybreak. US markets are closed for President's Day.
I'm Nathan Hager, and we want to take a look
now at the oil market, commodities across the board have
been rocked with President Trump threatening and in some cases
imposing tariffs on friend and foe alike. Here to give
us a sense of the energy outlook as we make
(13:24):
sense of this new tougher trade policy is Stephen Shork,
president of the energy analysis firm the Short Group. Thanks
again for being with us, Steven, And we have seen
oil prices really take a hit on the tariffs that
President Trump is already imposed and the threat of more
to come. How do tougher trade policies affect your outlook
(13:45):
for the months to come?
Speaker 4 (13:46):
Yeah, absolutely, Nathan. So what I like to do, of course,
is always look at the market's term structure or its
forward curve. And with all of the rhetoric and some
of it has made good on with regard to the tariffs,
when it comes to oil, we have to think about
this logically. A lot of this is bluster. The United States,
and specifically our refineries in the Upper Midwestern the Chicago
(14:07):
market area, are wholly dependent on importing crude oil from Canada.
These refiners are geared specifically to refine Canadian heavy crude oil.
So with regards to the terrifs, when it comes to oil.
I think it's a bit of brinksmanship so far. I
think the administration has blinked on that matter, because the
(14:29):
last thing the administration wants to do, of course, is
drive up oil prices, which consumers will begin to feel
immediately at the pump. So that said, when we look
at the term structure, the market has been fairly stable
non ex WTI has been ranged bound in between about
seventy dollars and seventy five dollars a barrel for this quarter,
(14:49):
which is in perfect agreement with our modeling that we
came out. We entered this year with oil at about
sixty nine dollars fifty cents. The midpoint for this quarter
based on our model is about seventy one dollars and
sixty cents. And as they said, the market has pretty
much been ranged bound in between seventy and seventy five.
Most importantly, a recent survey put out by the Dallas
(15:11):
Federal Reserve to oil executives in the oil patch down
in Texas, Oklahoma, Kansas, and so forth, or asked what
they were planning oil prices based on their capital spending
and as long as the oil prices hold in that
seventy seventy five dollars range. Not coincidentally, the industry will
continue to invest. So from this standpoint, the teriffs the
(15:34):
talk their rhetoric, Yes, it makes a lot of noise,
but when you look at the relatively lack of volatility,
So we're looking at a market when we look at
whether it's range bound, there's a lack of volatility. The
market has been relatively stable as far as looking at
the spreads, the spreads are indicating. That is to say,
as we look at prices along the forward curve, the
(15:54):
market is well balanced. No one is clamoring for product.
Speaker 2 (15:59):
So do you see any factor breaking the oil market
out of this range, and if so, is it going
to go up or is it going to go down?
Speaker 4 (16:07):
I think the risk is certainly to the downside. Of course,
the big two geopolitical headlines out there are sanctions and
a harder stamps on Russian and Iranian oil, and of
course that is a potential uptick that would propel oil
prices higher. But again, looking at the forward curve, in
(16:27):
the turn structure in oil markets all around the world,
traders are placing a maximum of minimum concern on these
geopolitical events. So just as we've seen over the past
two years when more in the Middle East broke out,
it's less about supply more about demand. So the supply
issues will always okay, supplies out of the Middle East
(16:49):
transiting through the Red Sea with all the attacks and shipping,
that's a supply issue, but it had not impact prices.
So the concern now is more of global economic growth.
And when we say that when it comes to oil,
of course we're talking about China. But we've been waiting
for bide when it comes to China for the past
three years with this demand to hit, it has not hit.
(17:10):
I don't think it's going to hit in this year.
So certainly, if there is a risk of breaks out
of that range, Nathan, it is certainly oil prices below
seventy dollars a barrel rather than oil prices above eighty
dollars a barrel through the first at least six months
of this year.
Speaker 2 (17:24):
To your point about waiting for that demand shift to
change coming out of China, it gets us into the
next OPEC Plus meeting and the decision on whether to
continue with the delayed production increases from the oil cartel.
What's your expectation there.
Speaker 4 (17:42):
Yeah, exactly, so there's speculation, of course, if we're tougher
on Russia, we're tougher in Iran the other OPEC members,
primarily the Arab oil producers who don't have a lot
of love loss with between the Arabs and the Iranians,
that Saudi Arabia and so forth will increase production. But
that is just trying to play geopolitics.
Speaker 3 (18:03):
One oh one.
Speaker 4 (18:04):
What we have to look at again is the spread,
the spread between Brent Dubai, the Dubai spreads, the Middle
East spreads, and what we're indicating here is once again
a market that is relatively stable on a global standpoint.
So once again OPEK is going to look rather than
look at the potential, they're going to look at what
(18:25):
the market's telling them. Their analysts are excellent at looking
at this. So I would suspect there's a fifty to
fifty chance that they'll they'll maintain the status quo i e.
They'll kick the production, you know, the quota adherents, they'll
kick that can down the road until their next meeting
unless they see something that happens in the spreads. And
(18:47):
right now that the spreads are telling OPEK, they're telling
traders that the market is in balance at this point,
regardless of all these known unknowns of geopolitical events, be
it Iran Russia, the war between in Gaza between Iran
and Israel basically, and certainly the situation in Ukraine. So
(19:07):
until we see something hard tangible to trade on the
spreads is telling us no OPA will maintain the status quo.
Speaker 2 (19:14):
We're speaking with Stephen Schork, president of the Short Group,
energy analyst with us on this special edition of Bloomberg Daybreak.
I know you said we should look past the noise
when it comes to the oil market, Stephen, but if
you'll indulge me for a minute, we have heard noise,
if you want to call it that, from President Trump
on the campaign trail, now in office saying drill, baby, drill.
(19:35):
He wants to boost energy production in this country. Is
that something you're thinking about when it comes to the
outlook for crud?
Speaker 4 (19:44):
Of course, and that really hammers home the point of
the rhetoric. So yes, the president, we'll want to talk
about drill, about baby drill, But guess what we are drilling, baby,
and we are drilling a lot of oil at this point.
So again i'll reference that the response is to a
(20:04):
survey to E and T executives put forth by the
Dallas said, and the response that is, the industry response
is relatively lukewarm to the idea of drill baby drill.
Why because we're already drilling more oil than we ever had,
and we are by far drilling the most oil than
any country in the world. So there really is a
lot of neat left on that bone for us to
(20:26):
drill even more so, according to those responses, you only
have fourteen percent of the responses come from these executives
that said they planned to increase capital spending significantly. The
majority of the executives at these current prices are comfortable
with drilling at current rates, i e. There is no
need the market is telling them. They're not getting any
(20:48):
signal from the market to drill. So yes, President Trump
or President ex Monacle and the President Tariff will certainly
beat the drums about drill baby drill, But the bottom
line is we're already drilling and there's just not that
much more at this juncture. Given this price a range,
for us to drill even more, it does not make
any economic sense for any producer out there.
Speaker 2 (21:10):
We've been talking about the price range for crewe the
term structure. How does all this feed into where the
rubber literally meets the road in terms of gas prices
that we should expect to pay as we head into
the spring and summer months.
Speaker 4 (21:25):
Yeah, absolutely so. Right now, accordingly surveyed by TRIPLEA, the
national average is about three fifteen cents a gallon, slightly
higher three dollars and twenty cents in the metro New
York City area. But that three fifteen cents is no
I take that back. That was three thousand and fifteen
cents today compared to three dollars twenty cents a year ago.
(21:48):
So so basically we're on parts a year ago adjusted
for inflation, three and fifty cents, as we can all imagine,
is a very cheap price. With the oil remaining stable
a low volume utility, we can maintain that status pro
But let's keep in mind we are in February. Once
we get into March April, may we start burning in
(22:09):
our cars a different type or boiling, I should say,
a different type of gasoline, a summer grade gasoline which
is more expensive to blend and market and transport and
so forth. So we will see a natural increase in
gasoline prices. Typically that would be about between fifteen and
twenty cents between winter gasoline and summer gasoline. So, giving
(22:31):
the current price environment, that range amount of seventy seventy
five at three thousand and fifteen cents. By the time
Memorial Day to fourth of July rolls around and we're
all going out the beach up to the Poconos, gasoline
prices would naturally at this range b probably three dollars
and thirty cents. Three dollars and thirty five cents in
the current environment.
Speaker 2 (22:50):
Okay, Now where the environment is right now, and with
crude prices in this range, how does that affect the
energy transition? I mean, we've seen the talk of the
end of the electric vehicle mandates. There's a new administration
that is very bullish on crude. Where do you see
(23:11):
the energy transition going forward?
Speaker 4 (23:15):
Basically where I saw going backwards. I think the whole
concept of the energy transition it made great, you know,
it was great for PowerPoint presentations in global economic forms
and so forth, But the industry understood that demand for
fossil fuels was not moving anywhere, that fossil fuel demand
will continue to grow India just came out and said
(23:35):
they expect fossils field growth to continue until twenty fifty.
The same goes for China and so forth. So what
we're seeing now here is more of an economic even
playing field where these mandates. If there's economically viable for
full eds or for any of the energy transitions, then
we wouldn't need the government, that is, wouldn't need to
(23:58):
underwrite it. So what we're seeing now here is a
transition that is more of an all inclusive And I
always go back to President Obama's twenty twelve re election platform,
where he recognized that there was a need, a growing
need for renewables, of course, but equally he also and
(24:19):
I encourage our listeners to go back and reread his
twenty twelve platform because it also embraced nuclear, it did
embrace clean coal, it embraced natural gas and fossil fuels.
So we're going back to this. Any transition is moving
more from a binary transition, that is to say, I
have to kill all of my dispatchable energy and now
(24:40):
I have to have it all replaced by intermittent weather
related BTUs. We're moving away from that, and we're moving
more towards an all inclusive policy where renewables, of course
will play a role in this, but so too will
natural gas, nuclear energy, and other fossil fuels. And it
will be in all of the above approach to our
(25:02):
energy needs going forward for at least the next four years,
as opposed to the zero sum game where we have
to kill fossil fuels and we can only use renewables,
which was always has been known to be untenable. We've
just we're now seeing the quipout part out loud.
Speaker 2 (25:20):
Really appreciate this, Stephen, thanks again for coming on with us.
Speaker 4 (25:23):
Absolutely always enjoy being back here.
Speaker 2 (25:25):
That's Stephen Schork, president of the Short Group. And straight ahead,
we'll look ahead to earnings from Walmart this week as
this special edition of Bloomberg Daybreak continues. It's thirty eight
minutes past the hour. I'm Nathan Hager, and this is Bloomberg.
(25:47):
Welcome back to the special holiday edition of Bloomberg Daybreak.
US markets are closed for Presidents Day. I'm Nathan Hager
closing out this hour with a look ahead to one
of the big earning stories of the week coming from
one of the world's biggest retailers, Walmart reports results from
the holiday quarter this Thursday. But what can we expect
from the outlook for this retail giant with so much
(26:11):
uncertainty around the economy, not to mention trade policy. Here
with some insights for us is Aroune Sundorum, Senior vice
president for Equity Research at CFR. Thanks for being with us, Aron.
We'll look at at the chart right now Walmart stock.
It's up more than ten percent year to date. Can
we expect that kind of bowl run to continue when
(26:33):
the retail giant posts those earnings this week?
Speaker 5 (26:36):
Walmart tends to guide conservatively to start the year, so
don't be surprised if you do see a softer than
expected outlook. But I think investors typically look at the
outlook with the grain of salt because Walmart tends to,
at least over the last few years, they have raised
their outlook as the year progresses. So expect to be
on top of bottom line potentially a weaker than put
(26:57):
the outlook, But you know, I don't think that should
send tend the stock that much lower.
Speaker 2 (27:01):
What's going to drive the beat? Do you think? Is
it just going to be about the bounce that we
tend to see for retail around the holidays.
Speaker 5 (27:10):
Well, yeah, I mean for Walmart. Yeah, their in their
US business. Yeah, the strong holiday season should drive a
beat to the top line when they report a Q
three result. They even know that back then that early
results for their holiday season was encouraging, and we do
know that the overall Hollay season was pretty strong. And
I think one thing we often overlook with Walmart too
is that they have a very large international business that
(27:31):
has been growing in a high single digit percentage range
over the last few quarters. They're doing well and regions
like Mexico, China, Canada, all those regions are doing pretty well.
And then lastly, you know, Walmart also has their club business,
sam Club, and that's also been performing really well. We
talk a lot about Costco and how well Costco is doing,
but sam Club, you know, it seems to be a
formidable competitor to Costco and it's also growing at a
(27:53):
mid to high single digit percentage range.
Speaker 2 (27:55):
Interesting to hear you single out China, Canada, and Mexico
as far as growth drivers in internationally. Those are the
three countries that have been targets of tariff threats from
President Trump. How could that affect the outlook if we
start to see trade uncertainty creeping into these earnings.
Speaker 5 (28:12):
Yeah, so that's that's another reason why I do think
the outlook could be more conservative than usual. We saw
that with with Amazon when Amazon reported recently that there
is more uncertainty this year than than previous years. We
have potential tariffs, we have inflation that looks like looks
like it's going to accelerate this year. We still have
(28:32):
high interest rates and and and all that kind of
clouds and already pretty cloudy outlook. So I do think
we'll see, you know, a conservative outlook in that regard.
But regarding its international businesses, although they're a global company,
they do have pretty like localized supply chains. A lot
of what they uh supply and produce and sell, a
(28:53):
lot of it is located domestically. So yeah, I mean, yeah,
they're going to face tariff. If there are tariffs, it's
clearly going to be a win for Walmart. But I
think they can they'll be able to mitigate that headwin.
And again, this is not their first rodeo with tariffs.
Walmart experienced the tariff the trade war with China back
in twenty eighteen twenty nineteen, So I think generally retailers
are better prepared for tariffs this time around, So.
Speaker 2 (29:15):
You don't expect to see much of a shift in
the supply chain flows for Walmart, even if we do
see even more aggressive tariffs than the President has telegraphed.
Speaker 5 (29:28):
Yeah, so I think from the first trade war with
China back in twenty eighteen twenty nineteen, since then, all
retailers have diversified their supply chain a bit more, and
a lot of them have moved out of China, went
to regions like you know, Vietnam, Cambodia, India, places like that,
and so I think generally we're seeing a much more
diversified supply chain.
Speaker 4 (29:48):
So that does help reduce tariff risks.
Speaker 5 (29:52):
And Walmart US about two thirds of the items of
cells in the US are made, grown, or assembled domestically
in the US. That is a lot, I mean a
large percentage of of their products. So there's only about
one third of their goods that are imported, and a
lot of that is in China. So I think because
Walmart is predominantly a food retailer, I think they're better
(30:13):
and and a lot of food products are you know,
domestically produced. I think they face less care risks than
you know, general merchandise retailers. To retail is like a
target for example, that UH sell predominantly general merchandise items,
a lot, a lot more of those goods are imported
from other countries.
Speaker 2 (30:29):
So it was curious whether we could see something of
a of a trade impact on food when you think
about Canada and Mexico being you know, agriculture suppliers to
some extent into the US. Could could that be a
headwind for Walmart.
Speaker 5 (30:45):
Yeah, so yeah, there's potential places in food with tariffs especially,
I think a lot more agricultural commodities, things like fruits
and vegetables that we often import from, you know, places
like Canada and Mexico. So yeah, that's an area where
I mean, we're watching closely and we could we could
see inflation accelerate in a lot of those fresh categories.
(31:07):
Ian Walmart's still the leader in price, and I think
they typically have more levers than others to absorb some
of these cost increases. But then of the day, there's
only so much that they can absorb, and anything incremental
that they can't absorb will likely be passed on, passed on,
to the consumer. But again, you know, Walmart being the
value retailer, they tend to have, you know, the lowest
prices in town. And yeah, that's why I think Walmart
(31:29):
typically does well in inflationary environments because they can provide
that value that you know, other retailers, you know, can't
necessarily do the same.
Speaker 2 (31:36):
We're speaking to Aroun Sundram, Senior vice president for Equity
Research at CFR looking ahead to those Walmart earnings coming
up later this week. Ahead of these earnings are and
we've heard from companies like McDonald's talking about pressures that
they see on the low end consumer. And we've seen
this phenomenon lately, as inflation is stayed elevated, a lot
(31:59):
of higher end consumers have been shopping for value at
places like Walmart. How do you see that feeding through
potentially into what we get this way.
Speaker 5 (32:07):
Yeah, that's that's been a theme for the past year
or two, and I think that's a thing that's going
to continue in twenty twenty five. Yeah, clearly the lower
income consumer is feeling a bit more stress right now.
And you would think that, you know, Walmart, you know,
you think this would be hurting Walmart. They wouldn't be
seeing these strong results, but I think they've been able
to offset that by bringing in incremental middle to upper
(32:28):
income consumers. And I think one of the reasons they've
been able to do that is because of the new
subscription model, Walmart Plus. Walmart Plus is a direct competitor
to Amazon Prime. You get fast, free delivery on groceries,
and I think that Walmart Plus business has done really well.
And they don't disclose the exact number of members that
are signed up, but from from our channel checks, it
(32:50):
seems that it's growing at a pretty good rate. I mean,
even Walmart's e commerce business, it's growing out about twenty
percent clip year every year. I think a lot of
that is because they've been able to bring in more
of those Walmart Plus members in there. And I think
Walmart Plus is great because that helps also retain those
higher income households and even even when inflation does come down,
you know, now you know once you once you lock
(33:11):
these customers in, you drive more conversion. So that's why
we're pretty optimistic here because Walmart's always been known for
a value retailer, but they're actually now being better known
for convenience that's usually a title that's held with Amazon
as the leader in convenience, but now Walmart I think
it's doing better in the convenience factor. And if you
combine value and convenience, it's a pretty strong proposition for
(33:33):
the for the consumer.
Speaker 2 (33:34):
Sort of fed into my next question thinking about how
Walmart stacks up against Amazon with this this kind of
subscription model, I guess, a consumer loyalty program. You might
think of Amazon as as sort of a first mover
with Amazon Prime. Is Walmart chipping away at Amazon Prime
(33:55):
with its offering?
Speaker 4 (33:56):
Yeah?
Speaker 5 (33:57):
So Walmart, I mean Walmart Plus is is a direct
It's a dire direct competition against Amazon Prime. But I
think where Walmart has always had a stronghold is in grocery.
That's an area where Amazon has struggled over the last
several years. Amazon bought Whole Food several years ago.
Speaker 3 (34:13):
That business is.
Speaker 5 (34:13):
Doing well, but they're local business or their their own
business called Amazon Fresh and hasn't performed up to expectations.
And I think Amazon has really struggled in the grocery arena,
which is where Walmart has always shined in grocery and perishables.
So I think a lot of I mean from a
stat I saw earlier, a large percentage of Walmart Plus
(34:35):
subscribers are also Amazon Prime suscribers. So people tend to
have both subscriptions, and they use Walmart Plus for groceries
and they use Amazon Prime for everything else. And the
Walmart Plus is a little bit cheaper. It's ninety eight
dollars per year in the US. Amazon Prime is about
one hundred and forty dollars per year in the US,
And I think you get because of the different offerings
you get, you tend to see consumers sign up for both.
Speaker 2 (34:58):
It's also curious to to get your thoughts on whether
we could see wage pressures from Walmart coming down the
linecause I'm thinking about Costco coming out where it's thirty
dollars an hour wage for workers. There. Is that going
to put pressure on Sam's Club, the subscription service the
Walmart offers.
Speaker 5 (35:17):
Yeah, yeah, so I mean wage investments, wage pressures. That's
been a headlind for several years now. Sam's Club they
actually just recently announced a wage increase back in September
of last year, but that's going to be another continued
trend this year. We'll likely see more wage pressures this year.
The good news is that, you know, when you have
a company growing sales, you know, mid to high single digits,
(35:39):
you can absorb some of those costume increases and it
doesn't really impact the overall bottom line. But when you
struggle to grow sales, like some other retailers there are
right now, it's very difficult to also grow margins because
of all these added wage pressures. So at the end
of the day, I'm not overly worried about these wage
investments as long as Walmart is able to grow their
sales at amid single distrect percentage range, which we do
(36:01):
expect will happen in twenty twenty five.
Speaker 2 (36:04):
In terms of Walmart's stock performance, it's hard to see
a lot of pessimism around the stock, a lot of
buy ratings on Walmart. Are there risks to that momentum?
Speaker 5 (36:14):
Yeah, I mean, I mean, the number one concern I
get with investors on Walmart is not anything about the fundamentals.
It's about how expensive the stock has gotten. From a
four pe perspective. It's trading nearly forty times.
Speaker 4 (36:26):
Of a forward pe.
Speaker 5 (36:28):
Historically it's traded about twenty five times for p so
a pretty significant premium. But you know. The one thing
I'll note is that you know, Walmart shares used to
be even more expensive back in the day, back in
the late nineties early two thousands. When they're significantly expanding
their super center's footprint, the share is traded above forty
times forward earnings. And I think right now that the
(36:48):
shares do deserve this this hefty premium because of all
the things we talked about already, but also they're also
growing their store footprint right now, they're growing more supercenters
across the country. They're growing they're also growing SAMs Club
locations across the country. They're targeting thirty new Sam's Club
locations across the country. And then last thing, this is
the most important thing I think, is that Walmart's business
is diversifying. We talked about Walmart Plus and the subscription
(37:10):
revenue they're getting from that. They're also generating a lot
of advertising revenue as they grow out their e commerce market.
Marketplace in advertising, as you know, is much higher market
business than selling groceries.
Speaker 4 (37:19):
It's out of a store.
Speaker 5 (37:20):
So as as this advertising business continues to grow, I
think you can see Walmart's overall margins continue to expand
and when you have when when you're a retailer generating
you know, six hundred billion dollars per year and nearly
seven hundred billion dollars per year in revenues, every percent,
every basis point of margin translate into into uh into
a lot of profits. So that's what I'm pretty excited
(37:42):
about is I think over the next few years, and
Walmart has many levers to expand margins because of you
know things we talked about, but because of their subscription revenue,
their advertising revenue, they're growing their general merchandise sales. They're
also introducing automation and robotics, and they're in their fulfillment
centers and all of that they can translate into pretty
operating marketing expansion over at least I think the next
three years. And that's why I think the happy premium
(38:05):
can hold. And I think there's still upside to the
stock from here.
Speaker 2 (38:09):
Lots to consider as we wait those earnings from Walmart
due out this Thursday. Thank you for this, Arun, again,
great having you on with us.
Speaker 4 (38:17):
Yeah, thank you.
Speaker 2 (38:18):
That's Arun Sundram, senior equity research analyst at CFIRA. Want
to deliver thanks as well to Stephen Shork of the
Short Group and Eric Balchunis of Bloomberg Intelligence. Thanks to
you as well for joining us on this special hour
of Bloomberg day Break for this president. Stay, I'm Nathan Hager.
Stay with us. Today's top stories and global business headlines
(38:38):
are coming up right now.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:10):
Thanks for joining us on this special holiday edition of
Bloomberg Daybreak. US markets are closed for President's Day. I'm
Nathan Hager, and coming up this hour, we will get
a read on the energy market after a winter that
has seen wild swings in the weather, and on trade.
Plus we'll look ahead to one of the biggest earning
stories of the week as Walmart gets set to report
(00:31):
results from the holiday quarter. First, though, we want to
take a look at the broader investment landscape how it
may be changing with a new president in office. I
think it's pretty safe to say it was a pretty
tough environment as far as regulation goes when Gary Gensler
was head of the Securities and Exchange Commission under then
President Joe Biden. Now with a new SEC chief on
(00:52):
the way under current President Donald Trump, are things starting
to change for investors? Let's get some answers on this.
Joining us on this holiday is Eric Balchunis, ETF, analyst
for Bloomberg Intelligence. Thanks so much for being with us
on the holiday. Eric, and I know we've got a
lot of acting commissioners acting chiefs on the way as well,
(01:13):
But are things starting to change now as far as
where things sit in your world and ETFs.
Speaker 3 (01:19):
Uh.
Speaker 1 (01:20):
Yeah, There's been a couple of small things that we've seen,
nothing major, But I think one of the big things
is esther purse, which she was a commissioner. She is
a commissioner, and she was in the minority during the
Gensler era and she had a lot of opposing opinions
that she would write about. And now she's working one
of the two commissioners of the Act, is helping the
acting commissioner. And some of the things we've seen, for example,
(01:42):
they approved options on some precious metals ets that have
been waiting ten years. It's a minor thing, but it
just shows I think she just wants to get stuff
out the door in the end. You know, she was
very big on the SEC being a merit based regulator meeting.
You just want to get the disclose out and then
let the consumers pick. You don't want to play nanny
(02:05):
too much in sort of saying.
Speaker 3 (02:06):
This is bad, this is good.
Speaker 1 (02:08):
So I think what you're going to see is just,
you know, a little bit of Pandora's box opening up
with products and I think some will be really good
and successful. Some are going to be a little wild
and we'll cause some head scratching maybe, but this is
the ETF industry always pushes the envelope, and they're just
gonna be able to push a little further. I think
under this SEC chair, who hasn't been confirmed yet, but
assuming he is Atkins, he'd be working obviously with Hester Purse.
(02:32):
And the other thing they did was they moved a
bunch of people who were on a crypto fraud. They
moved some people out of that team, and that again
was another sign that in terms of the crypto, which
was I think Gensler is like you know, he was
both known for being tough on that. It's going to
be more lenient for sure. I would look for a
ton of new coins and tokens to be etfised, and
(02:55):
I would look for the industry also to push the
envelope and some other things like share classes and maybe
even some things like trying to put private equity and
private credit into ETFs.
Speaker 3 (03:07):
Knowing they have a more liberal regulator.
Speaker 1 (03:10):
I mean, the regulator is more conservative, but I'd say
they're more liberal in terms of what they'll approve.
Speaker 2 (03:14):
Well, let's dig into those broad strokes just a little bit.
What kinds of products are you looking forward to that
could find some success among investors.
Speaker 1 (03:26):
Yeah, so I think the first two are ets tracking
Solana and XRP, which are two different networks. They're cryptocurrencies,
and those two in particular have been the industry has
been trying to get those approved for like five years.
And even though Gary Gensler approved Bitcoin and ether, he
(03:47):
basically said everything outside of that is a security and
therefore it cannot be put into an ETF under the
thirty three Act. And they even called XRP and Solana
securities in lawsuits. And so the fact that the Salana
ETF was acknowledged recently there was a new filing. They
got acknowledged. They never acknowledged one of the pasts. Acknowledged
(04:07):
just means the sec is like, Okay, we know you filed.
We're going to let people comment on it. It's part
of the normal process. In the past, when someone tried
to follow Solana or XRP ETF, they would literally call
the issuer and say get this out of here. It
wouldn't even last three days. But this they've been filed
now for two weeks. They've been acknowledged they're moving along
the normal past. Doesn't mean to be approved, but it's
(04:28):
a good sign. That probably indicates that they may actually
rescind some of the lawsuits, because it would be weird
for them to approve these while having a lawsuit and
saying and writing that these are securities. So that's something
to watch right there. And if Solana and XRP are
put into ETF form, they have I think a decent
chance to get some assets. Now, once you get out
(04:48):
of there, you're going to get into some weird stuff
like dose coin, Polka Dot bonk. They even filed for
a trump Coin ETF, a Milania ETF, and a double
leveraged Malania. So here's the thing though, even if all
that gets out, most of it will just live in oblivion.
I think you've got think about the precious metals. Gold
(05:09):
is the stud, Silver's got a good living, platinum, pladium,
And then once you get to commodities like coffee, nickel, aluminum,
some ETFs are tried and failed. I think you'll see
the same thing here. I think Bitcoin will get like
seventy five percent of the assets, Ether ten percent, and
then XRP Solana will you know, fight over the other
(05:30):
eight or nine percent, and then we'll see one wacky
one get lucky for a minute, and then you know,
rise and fall. So I think even though we will
see a ton of stuff approved, most of the assets
from the big money in America are they're not going
to go crazy. They're gonna stick to bitcoin as they're
that's crazy to most people, to be honest. So they're
gonna stick to bitcoin, and that's where most of.
Speaker 3 (05:51):
The assets will go.
Speaker 1 (05:52):
But look for some really interesting things. And the thing
about a Trump and Malania coin etf is I was
that this was going to be interesting, is that these
are pretty fringe.
Speaker 3 (06:01):
I mean, they just launched.
Speaker 1 (06:02):
It made clear to everybody that the Trump coin was
you know a lot of even if the crypto people
didn't like it. It kind of they call it a
rug pull. You know, you put a meme coin out
and then all of a sudden, the people who started
leave and then the people who came in late.
Speaker 3 (06:16):
Hold the bag. It's like, you know, kind of a
short term Ponzi effect.
Speaker 1 (06:19):
Now that's Trump is the boss of the sec chair,
so it'd be weird if you didn't approve a coin
based on his coin, given that he's the boss that.
Speaker 3 (06:29):
Isn't the work.
Speaker 1 (06:30):
It all gets a little It's going to be interesting
to see how they deal with this, because we do
think some of the main coins will be approved. But
once you get to this really outskirtsy meme coin world,
will the.
Speaker 3 (06:41):
SEC just sort of let it out?
Speaker 1 (06:43):
That's a question we don't quite know, but if I
had to guess now, I'd lean towards they've probably let
most stuff out. But for people worried about how this
will be bad, most of this stuff will be ignored
by investors.
Speaker 2 (06:56):
Speaking with Eric Balchuna's ETF analysts for Bloomberg Intelligence, Eric,
if we're expecting these kind of approvals, what are you
expecting when it when it comes to enforcement of some
of the potential risks around some of these new products.
Speaker 1 (07:11):
This is where the big debate on what should the
SEC behold Should it really police the products, invest them
and say is this really safe for retail?
Speaker 3 (07:22):
It's sort of I guess like the FDA, at.
Speaker 1 (07:24):
Some point, you know, there's a line between what is
safe versus Hey, let's just disclose all risks and let
people have a choice and they if they want to,
you know, you know, if someone wants beat McDonald's every day.
It's really their choice, even though that's not healthy, and
you could argue the government should ban McDonald's. But this
is the same deal. And I think this sec with
(07:46):
this chair is going to be a little more like, look,
just let this stuff out, let people choose, but just
we're going to put a lot of the risks in
the perspectives. Now nobody reads the perspectives, that's the problem.
But I think most people if they see a two
X Smulania ETF, they're probably going to know it's wacky,
like they're going to know there's some that it's not vanguard. Okay,
(08:08):
But this whole thing is why we and BI have
something called the traffic light. It's based on movie ratings.
I always thought ETSD movie ratings that way, you know,
if the name sounds innocent, maybe you know, you know,
if the if the ETF has some stuff you need
to know about, you know, just sort of like a
nasty surprise indicator system. And so we would give most
(08:29):
of these yellow lights. The two X millennia would be
read because it's leverage. One ex millenni would be yellow
because its kind of extra volatility, and there's really no
cash flows backing any of this. It's like just it's
like a commodity. So I just think that would be
helpful for investors to have. Like imagine if you went
on your Schwab account, you pulled up any ticker and
(08:50):
it said you know, rated g PG, PG thirteen or R.
You get a very good idea of like, okay, if
this is our y and here's the three reasons they
got rated R tag. To me, that would be awesome.
We try to create this. We did create the system.
It's on the terminal. But that's I think how you
should think as an investor if you're looking at this stuff.
If it sounds wacky, you know, read the fine print.
(09:12):
If it sounds innocent, like the Vanguard is some P
five hundred, that probably is. But every now and then
there are some with innocent names that are a little
more involved, like the oil ETF. But I think most
of these are.
Speaker 3 (09:23):
Going to sound wacky, and they are wacky, so but
always I would read the perspectives if you can. And
that's what the SEC is going to say.
Speaker 1 (09:31):
Just put all this stuff, all the risks in the documents,
and that's that's the kind of you know, because they
want innovation, and they want things to be out there
for consumers. But there is a point where you can
put something out that, you know, is somebody could lose
money on. But I you know, this is again the
debate on what a regulator should be.
Speaker 4 (09:51):
Eric.
Speaker 2 (09:51):
Now that we do have a new administration in office,
have you seen some interesting shifts in ETF flows now
the there's new leadership in the White House.
Speaker 3 (10:02):
Yeah, it's interesting.
Speaker 1 (10:04):
You know, I think ETF investors over the years, you know,
we wrote a piece saying the S and P five
hundred doesn't care who.
Speaker 3 (10:10):
The president is.
Speaker 1 (10:12):
It's almost like the US stock market. We call it
the eighth Wonder of the World because it's just so relentless.
It's almost like immune to any of this. And I
think over the years, even if there has been drama
and maybe a pullback, it goes right back up. And
so we have seen no change in the flows from
like last summer into fall, into the winter into this
(10:36):
twenty twenty five. It's it's basically been a lot of
people continue to buy what we call beta, the S
and P five hundred, the bond ETFs, you know, the
sixty forty people are just continuing to buy now on
the fringes. There is some stuff that we see moving, like,
for example, in the bond space, we do see people
moving towards the shorter end of the curve, more towards
(10:57):
like a money market type deal, and I think that's
a little protection. We've seen obviously money go into the
bitcoin ets and some into gold. There's some thought that
that is, you know, an inflation hedge. And then the
stock market. Sometimes we'll see some flow like try to
bet on small caps having a rebound or.
Speaker 3 (11:19):
Europe, but those are usually short lived.
Speaker 1 (11:22):
So you do sometimes see people trying to bet on
some kind of a rotation or regime change.
Speaker 3 (11:27):
So again they're on the outskirts.
Speaker 1 (11:29):
We see bets being made, but for the most part,
the sort of mainstream flow of money continues to buy
us stocks, you know, at a breakneck pace, and it's
going to take more than just like a you know,
a scary tariff headline to get these ETF investors to
to change direction. And you know, and why would they.
(11:53):
They've they've almost been conditioned like Pavolovian dogs to just
keep buying because it's worked out.
Speaker 3 (11:58):
If you've ever read a.
Speaker 1 (12:00):
Scary headline pulled your money out put in cash.
Speaker 3 (12:02):
You're basically filled with a ton of regret.
Speaker 1 (12:06):
And so this is where we're at. Why I think
that it will take like a black Swan event in
my opinion, to really see anything shift, something like the
COVID something we're not not tariffs, you know, not a
crazy tweet Like it has to be something like really
major that nobody's even looking at in my opinion, for
the general blob of money to like stop investing or
(12:30):
to move out of stocks.
Speaker 2 (12:31):
Really appreciate this. Eric, thanks again for coming on with us.
Speaker 3 (12:34):
You got it anytime.
Speaker 2 (12:35):
That's Eric Baluchunis ETF, analyst for Bloomberg Intelligence, and coming
up next on the special holiday edition of Bloomberg Daybreak,
we're going to take a look at the oil market
how that may be shifting under the new administration. We'll
be speaking with Stephen Schork, president of the Short Group.
It's twenty minutes past the hour. I'm Nathan Hager, and
this is Bloomberg. Welcome back to this special holiday edition
(13:03):
of Bloomberg Daybreak. US markets are closed for President's Day.
I'm Nathan Hager, and we want to take a look
now at the oil market, commodities across the board have
been rocked with President Trump threatening and in some cases
imposing tariffs on friend and foe alike. Here to give
us a sense of the energy outlook as we make
(13:24):
sense of this new tougher trade policy is Stephen Shork,
president of the energy analysis firm the Short Group. Thanks
again for being with us, Steven, And we have seen
oil prices really take a hit on the tariffs that
President Trump is already imposed and the threat of more
to come. How do tougher trade policies affect your outlook
(13:45):
for the months to come?
Speaker 4 (13:46):
Yeah, absolutely, Nathan. So what I like to do, of course,
is always look at the market's term structure or its
forward curve. And with all of the rhetoric and some
of it has made good on with regard to the tariffs,
when it comes to oil, we have to think about
this logically. A lot of this is bluster. The United States,
and specifically our refineries in the Upper Midwestern the Chicago
(14:07):
market area, are wholly dependent on importing crude oil from Canada.
These refiners are geared specifically to refine Canadian heavy crude oil.
So with regards to the terrifs, when it comes to oil.
I think it's a bit of brinksmanship so far. I
think the administration has blinked on that matter, because the
(14:29):
last thing the administration wants to do, of course, is
drive up oil prices, which consumers will begin to feel
immediately at the pump. So that said, when we look
at the term structure, the market has been fairly stable
non ex WTI has been ranged bound in between about
seventy dollars and seventy five dollars a barrel for this quarter,
(14:49):
which is in perfect agreement with our modeling that we
came out. We entered this year with oil at about
sixty nine dollars fifty cents. The midpoint for this quarter
based on our model is about seventy one dollars and
sixty cents. And as they said, the market has pretty
much been ranged bound in between seventy and seventy five.
Most importantly, a recent survey put out by the Dallas
(15:11):
Federal Reserve to oil executives in the oil patch down
in Texas, Oklahoma, Kansas, and so forth, or asked what
they were planning oil prices based on their capital spending
and as long as the oil prices hold in that
seventy seventy five dollars range. Not coincidentally, the industry will
continue to invest. So from this standpoint, the teriffs the
(15:34):
talk their rhetoric, Yes, it makes a lot of noise,
but when you look at the relatively lack of volatility,
So we're looking at a market when we look at
whether it's range bound, there's a lack of volatility. The
market has been relatively stable as far as looking at
the spreads, the spreads are indicating. That is to say,
as we look at prices along the forward curve, the
(15:54):
market is well balanced. No one is clamoring for product.
Speaker 2 (15:59):
So do you see any factor breaking the oil market
out of this range, and if so, is it going
to go up or is it going to go down?
Speaker 4 (16:07):
I think the risk is certainly to the downside. Of course,
the big two geopolitical headlines out there are sanctions and
a harder stamps on Russian and Iranian oil, and of
course that is a potential uptick that would propel oil
prices higher. But again, looking at the forward curve, in
(16:27):
the turn structure in oil markets all around the world,
traders are placing a maximum of minimum concern on these
geopolitical events. So just as we've seen over the past
two years when more in the Middle East broke out,
it's less about supply more about demand. So the supply
issues will always okay, supplies out of the Middle East
(16:49):
transiting through the Red Sea with all the attacks and shipping,
that's a supply issue, but it had not impact prices.
So the concern now is more of global economic growth.
And when we say that when it comes to oil,
of course we're talking about China. But we've been waiting
for bide when it comes to China for the past
three years with this demand to hit, it has not hit.
(17:10):
I don't think it's going to hit in this year.
So certainly, if there is a risk of breaks out
of that range, Nathan, it is certainly oil prices below
seventy dollars a barrel rather than oil prices above eighty
dollars a barrel through the first at least six months
of this year.
Speaker 2 (17:24):
To your point about waiting for that demand shift to
change coming out of China, it gets us into the
next OPEC Plus meeting and the decision on whether to
continue with the delayed production increases from the oil cartel.
What's your expectation there.
Speaker 4 (17:42):
Yeah, exactly, so there's speculation, of course, if we're tougher
on Russia, we're tougher in Iran the other OPEC members,
primarily the Arab oil producers who don't have a lot
of love loss with between the Arabs and the Iranians,
that Saudi Arabia and so forth will increase production. But
that is just trying to play geopolitics.
Speaker 3 (18:03):
One oh one.
Speaker 4 (18:04):
What we have to look at again is the spread,
the spread between Brent Dubai, the Dubai spreads, the Middle
East spreads, and what we're indicating here is once again
a market that is relatively stable on a global standpoint.
So once again OPEK is going to look rather than
look at the potential, they're going to look at what
(18:25):
the market's telling them. Their analysts are excellent at looking
at this. So I would suspect there's a fifty to
fifty chance that they'll they'll maintain the status quo i e.
They'll kick the production, you know, the quota adherents, they'll
kick that can down the road until their next meeting
unless they see something that happens in the spreads. And
(18:47):
right now that the spreads are telling OPEK, they're telling
traders that the market is in balance at this point,
regardless of all these known unknowns of geopolitical events, be
it Iran Russia, the war between in Gaza between Iran
and Israel basically, and certainly the situation in Ukraine. So
(19:07):
until we see something hard tangible to trade on the
spreads is telling us no OPA will maintain the status quo.
Speaker 2 (19:14):
We're speaking with Stephen Schork, president of the Short Group,
energy analyst with us on this special edition of Bloomberg Daybreak.
I know you said we should look past the noise
when it comes to the oil market, Stephen, but if
you'll indulge me for a minute, we have heard noise,
if you want to call it that, from President Trump
on the campaign trail, now in office saying drill, baby, drill.
(19:35):
He wants to boost energy production in this country. Is
that something you're thinking about when it comes to the
outlook for crud?
Speaker 4 (19:44):
Of course, and that really hammers home the point of
the rhetoric. So yes, the president, we'll want to talk
about drill, about baby drill, But guess what we are drilling, baby,
and we are drilling a lot of oil at this point.
So again i'll reference that the response is to a
(20:04):
survey to E and T executives put forth by the
Dallas said, and the response that is, the industry response
is relatively lukewarm to the idea of drill baby drill.
Why because we're already drilling more oil than we ever had,
and we are by far drilling the most oil than
any country in the world. So there really is a
lot of neat left on that bone for us to
(20:26):
drill even more so, according to those responses, you only
have fourteen percent of the responses come from these executives
that said they planned to increase capital spending significantly. The
majority of the executives at these current prices are comfortable
with drilling at current rates, i e. There is no
need the market is telling them. They're not getting any
(20:48):
signal from the market to drill. So yes, President Trump
or President ex Monacle and the President Tariff will certainly
beat the drums about drill baby drill, But the bottom
line is we're already drilling and there's just not that
much more at this juncture. Given this price a range,
for us to drill even more, it does not make
any economic sense for any producer out there.
Speaker 2 (21:10):
We've been talking about the price range for crewe the
term structure. How does all this feed into where the
rubber literally meets the road in terms of gas prices
that we should expect to pay as we head into
the spring and summer months.
Speaker 4 (21:25):
Yeah, absolutely so. Right now, accordingly surveyed by TRIPLEA, the
national average is about three fifteen cents a gallon, slightly
higher three dollars and twenty cents in the metro New
York City area. But that three fifteen cents is no
I take that back. That was three thousand and fifteen
cents today compared to three dollars twenty cents a year ago.
(21:48):
So so basically we're on parts a year ago adjusted
for inflation, three and fifty cents, as we can all imagine,
is a very cheap price. With the oil remaining stable
a low volume utility, we can maintain that status pro
But let's keep in mind we are in February. Once
we get into March April, may we start burning in
(22:09):
our cars a different type or boiling, I should say,
a different type of gasoline, a summer grade gasoline which
is more expensive to blend and market and transport and
so forth. So we will see a natural increase in
gasoline prices. Typically that would be about between fifteen and
twenty cents between winter gasoline and summer gasoline. So, giving
(22:31):
the current price environment, that range amount of seventy seventy
five at three thousand and fifteen cents. By the time
Memorial Day to fourth of July rolls around and we're
all going out the beach up to the Poconos, gasoline
prices would naturally at this range b probably three dollars
and thirty cents. Three dollars and thirty five cents in
the current environment.
Speaker 2 (22:50):
Okay, Now where the environment is right now, and with
crude prices in this range, how does that affect the
energy transition? I mean, we've seen the talk of the
end of the electric vehicle mandates. There's a new administration
that is very bullish on crude. Where do you see
(23:11):
the energy transition going forward?
Speaker 4 (23:15):
Basically where I saw going backwards. I think the whole
concept of the energy transition it made great, you know,
it was great for PowerPoint presentations in global economic forms
and so forth, But the industry understood that demand for
fossil fuels was not moving anywhere, that fossil fuel demand
will continue to grow India just came out and said
(23:35):
they expect fossils field growth to continue until twenty fifty.
The same goes for China and so forth. So what
we're seeing now here is more of an economic even
playing field where these mandates. If there's economically viable for
full eds or for any of the energy transitions, then
we wouldn't need the government, that is, wouldn't need to
(23:58):
underwrite it. So what we're seeing now here is a
transition that is more of an all inclusive And I
always go back to President Obama's twenty twelve re election platform,
where he recognized that there was a need, a growing
need for renewables, of course, but equally he also and
(24:19):
I encourage our listeners to go back and reread his
twenty twelve platform because it also embraced nuclear, it did
embrace clean coal, it embraced natural gas and fossil fuels.
So we're going back to this. Any transition is moving
more from a binary transition, that is to say, I
have to kill all of my dispatchable energy and now
(24:40):
I have to have it all replaced by intermittent weather
related BTUs. We're moving away from that, and we're moving
more towards an all inclusive policy where renewables, of course
will play a role in this, but so too will
natural gas, nuclear energy, and other fossil fuels. And it
will be in all of the above approach to our
(25:02):
energy needs going forward for at least the next four years,
as opposed to the zero sum game where we have
to kill fossil fuels and we can only use renewables,
which was always has been known to be untenable. We've
just we're now seeing the quipout part out loud.
Speaker 2 (25:20):
Really appreciate this, Stephen, thanks again for coming on with us.
Speaker 4 (25:23):
Absolutely always enjoy being back here.
Speaker 2 (25:25):
That's Stephen Schork, president of the Short Group. And straight ahead,
we'll look ahead to earnings from Walmart this week as
this special edition of Bloomberg Daybreak continues. It's thirty eight
minutes past the hour. I'm Nathan Hager, and this is Bloomberg.
(25:47):
Welcome back to the special holiday edition of Bloomberg Daybreak.
US markets are closed for Presidents Day. I'm Nathan Hager
closing out this hour with a look ahead to one
of the big earning stories of the week coming from
one of the world's biggest retailers, Walmart reports results from
the holiday quarter this Thursday. But what can we expect
from the outlook for this retail giant with so much
(26:11):
uncertainty around the economy, not to mention trade policy. Here
with some insights for us is Aroune Sundorum, Senior vice
president for Equity Research at CFR. Thanks for being with us, Aron.
We'll look at at the chart right now Walmart stock.
It's up more than ten percent year to date. Can
we expect that kind of bowl run to continue when
(26:33):
the retail giant posts those earnings this week?
Speaker 5 (26:36):
Walmart tends to guide conservatively to start the year, so
don't be surprised if you do see a softer than
expected outlook. But I think investors typically look at the
outlook with the grain of salt because Walmart tends to,
at least over the last few years, they have raised
their outlook as the year progresses. So expect to be
on top of bottom line potentially a weaker than put
(26:57):
the outlook, But you know, I don't think that should
send tend the stock that much lower.
Speaker 2 (27:01):
What's going to drive the beat? Do you think? Is
it just going to be about the bounce that we
tend to see for retail around the holidays.
Speaker 5 (27:10):
Well, yeah, I mean for Walmart. Yeah, their in their
US business. Yeah, the strong holiday season should drive a
beat to the top line when they report a Q
three result. They even know that back then that early
results for their holiday season was encouraging, and we do
know that the overall Hollay season was pretty strong. And
I think one thing we often overlook with Walmart too
is that they have a very large international business that
(27:31):
has been growing in a high single digit percentage range
over the last few quarters. They're doing well and regions
like Mexico, China, Canada, all those regions are doing pretty well.
And then lastly, you know, Walmart also has their club business,
sam Club, and that's also been performing really well. We
talk a lot about Costco and how well Costco is doing,
but sam Club, you know, it seems to be a
formidable competitor to Costco and it's also growing at a
(27:53):
mid to high single digit percentage range.
Speaker 2 (27:55):
Interesting to hear you single out China, Canada, and Mexico
as far as growth drivers in internationally. Those are the
three countries that have been targets of tariff threats from
President Trump. How could that affect the outlook if we
start to see trade uncertainty creeping into these earnings.
Speaker 5 (28:12):
Yeah, so that's that's another reason why I do think
the outlook could be more conservative than usual. We saw
that with with Amazon when Amazon reported recently that there
is more uncertainty this year than than previous years. We
have potential tariffs, we have inflation that looks like looks
like it's going to accelerate this year. We still have
(28:32):
high interest rates and and and all that kind of
clouds and already pretty cloudy outlook. So I do think
we'll see, you know, a conservative outlook in that regard.
But regarding its international businesses, although they're a global company,
they do have pretty like localized supply chains. A lot
of what they uh supply and produce and sell, a
(28:53):
lot of it is located domestically. So yeah, I mean, yeah,
they're going to face tariff. If there are tariffs, it's
clearly going to be a win for Walmart. But I
think they can they'll be able to mitigate that headwin.
And again, this is not their first rodeo with tariffs.
Walmart experienced the tariff the trade war with China back
in twenty eighteen twenty nineteen, So I think generally retailers
are better prepared for tariffs this time around, So.
Speaker 2 (29:15):
You don't expect to see much of a shift in
the supply chain flows for Walmart, even if we do
see even more aggressive tariffs than the President has telegraphed.
Speaker 5 (29:28):
Yeah, so I think from the first trade war with
China back in twenty eighteen twenty nineteen, since then, all
retailers have diversified their supply chain a bit more, and
a lot of them have moved out of China, went
to regions like you know, Vietnam, Cambodia, India, places like that,
and so I think generally we're seeing a much more
diversified supply chain.
Speaker 4 (29:48):
So that does help reduce tariff risks.
Speaker 5 (29:52):
And Walmart US about two thirds of the items of
cells in the US are made, grown, or assembled domestically
in the US. That is a lot, I mean a
large percentage of of their products. So there's only about
one third of their goods that are imported, and a
lot of that is in China. So I think because
Walmart is predominantly a food retailer, I think they're better
(30:13):
and and a lot of food products are you know,
domestically produced. I think they face less care risks than
you know, general merchandise retailers. To retail is like a
target for example, that UH sell predominantly general merchandise items,
a lot, a lot more of those goods are imported
from other countries.
Speaker 2 (30:29):
So it was curious whether we could see something of
a of a trade impact on food when you think
about Canada and Mexico being you know, agriculture suppliers to
some extent into the US. Could could that be a
headwind for Walmart.
Speaker 5 (30:45):
Yeah, so yeah, there's potential places in food with tariffs especially,
I think a lot more agricultural commodities, things like fruits
and vegetables that we often import from, you know, places
like Canada and Mexico. So yeah, that's an area where
I mean, we're watching closely and we could we could
see inflation accelerate in a lot of those fresh categories.
(31:07):
Ian Walmart's still the leader in price, and I think
they typically have more levers than others to absorb some
of these cost increases. But then of the day, there's
only so much that they can absorb, and anything incremental
that they can't absorb will likely be passed on, passed on,
to the consumer. But again, you know, Walmart being the
value retailer, they tend to have, you know, the lowest
prices in town. And yeah, that's why I think Walmart
(31:29):
typically does well in inflationary environments because they can provide
that value that you know, other retailers, you know, can't
necessarily do the same.
Speaker 2 (31:36):
We're speaking to Aroun Sundram, Senior vice president for Equity
Research at CFR looking ahead to those Walmart earnings coming
up later this week. Ahead of these earnings are and
we've heard from companies like McDonald's talking about pressures that
they see on the low end consumer. And we've seen
this phenomenon lately, as inflation is stayed elevated, a lot
(31:59):
of higher end consumers have been shopping for value at
places like Walmart. How do you see that feeding through
potentially into what we get this way.
Speaker 5 (32:07):
Yeah, that's that's been a theme for the past year
or two, and I think that's a thing that's going
to continue in twenty twenty five. Yeah, clearly the lower
income consumer is feeling a bit more stress right now.
And you would think that, you know, Walmart, you know,
you think this would be hurting Walmart. They wouldn't be
seeing these strong results, but I think they've been able
to offset that by bringing in incremental middle to upper
(32:28):
income consumers. And I think one of the reasons they've
been able to do that is because of the new
subscription model, Walmart Plus. Walmart Plus is a direct competitor
to Amazon Prime. You get fast, free delivery on groceries,
and I think that Walmart Plus business has done really well.
And they don't disclose the exact number of members that
are signed up, but from from our channel checks, it
(32:50):
seems that it's growing at a pretty good rate. I mean,
even Walmart's e commerce business, it's growing out about twenty
percent clip year every year. I think a lot of
that is because they've been able to bring in more
of those Walmart Plus members in there. And I think
Walmart Plus is great because that helps also retain those
higher income households and even even when inflation does come down,
you know, now you know once you once you lock
(33:11):
these customers in, you drive more conversion. So that's why
we're pretty optimistic here because Walmart's always been known for
a value retailer, but they're actually now being better known
for convenience that's usually a title that's held with Amazon
as the leader in convenience, but now Walmart I think
it's doing better in the convenience factor. And if you
combine value and convenience, it's a pretty strong proposition for
(33:33):
the for the consumer.
Speaker 2 (33:34):
Sort of fed into my next question thinking about how
Walmart stacks up against Amazon with this this kind of
subscription model, I guess, a consumer loyalty program. You might
think of Amazon as as sort of a first mover
with Amazon Prime. Is Walmart chipping away at Amazon Prime
(33:55):
with its offering?
Speaker 4 (33:56):
Yeah?
Speaker 5 (33:57):
So Walmart, I mean Walmart Plus is is a direct
It's a dire direct competition against Amazon Prime. But I
think where Walmart has always had a stronghold is in grocery.
That's an area where Amazon has struggled over the last
several years. Amazon bought Whole Food several years ago.
Speaker 3 (34:13):
That business is.
Speaker 5 (34:13):
Doing well, but they're local business or their their own
business called Amazon Fresh and hasn't performed up to expectations.
And I think Amazon has really struggled in the grocery arena,
which is where Walmart has always shined in grocery and perishables.
So I think a lot of I mean from a
stat I saw earlier, a large percentage of Walmart Plus
(34:35):
subscribers are also Amazon Prime suscribers. So people tend to
have both subscriptions, and they use Walmart Plus for groceries
and they use Amazon Prime for everything else. And the
Walmart Plus is a little bit cheaper. It's ninety eight
dollars per year in the US. Amazon Prime is about
one hundred and forty dollars per year in the US,
And I think you get because of the different offerings
you get, you tend to see consumers sign up for both.
Speaker 2 (34:58):
It's also curious to to get your thoughts on whether
we could see wage pressures from Walmart coming down the
linecause I'm thinking about Costco coming out where it's thirty
dollars an hour wage for workers. There. Is that going
to put pressure on Sam's Club, the subscription service the
Walmart offers.
Speaker 5 (35:17):
Yeah, yeah, so I mean wage investments, wage pressures. That's
been a headlind for several years now. Sam's Club they
actually just recently announced a wage increase back in September
of last year, but that's going to be another continued
trend this year. We'll likely see more wage pressures this year.
The good news is that, you know, when you have
a company growing sales, you know, mid to high single digits,
(35:39):
you can absorb some of those costume increases and it
doesn't really impact the overall bottom line. But when you
struggle to grow sales, like some other retailers there are
right now, it's very difficult to also grow margins because
of all these added wage pressures. So at the end
of the day, I'm not overly worried about these wage
investments as long as Walmart is able to grow their
sales at amid single distrect percentage range, which we do
(36:01):
expect will happen in twenty twenty five.
Speaker 2 (36:04):
In terms of Walmart's stock performance, it's hard to see
a lot of pessimism around the stock, a lot of
buy ratings on Walmart. Are there risks to that momentum?
Speaker 5 (36:14):
Yeah, I mean, I mean, the number one concern I
get with investors on Walmart is not anything about the fundamentals.
It's about how expensive the stock has gotten. From a
four pe perspective. It's trading nearly forty times.
Speaker 4 (36:26):
Of a forward pe.
Speaker 5 (36:28):
Historically it's traded about twenty five times for p so
a pretty significant premium. But you know. The one thing
I'll note is that you know, Walmart shares used to
be even more expensive back in the day, back in
the late nineties early two thousands. When they're significantly expanding
their super center's footprint, the share is traded above forty
times forward earnings. And I think right now that the
(36:48):
shares do deserve this this hefty premium because of all
the things we talked about already, but also they're also
growing their store footprint right now, they're growing more supercenters
across the country. They're growing they're also growing SAMs Club
locations across the country. They're targeting thirty new Sam's Club
locations across the country. And then last thing, this is
the most important thing I think, is that Walmart's business
is diversifying. We talked about Walmart Plus and the subscription
(37:10):
revenue they're getting from that. They're also generating a lot
of advertising revenue as they grow out their e commerce market.
Marketplace in advertising, as you know, is much higher market
business than selling groceries.
Speaker 4 (37:19):
It's out of a store.
Speaker 5 (37:20):
So as as this advertising business continues to grow, I
think you can see Walmart's overall margins continue to expand
and when you have when when you're a retailer generating
you know, six hundred billion dollars per year and nearly
seven hundred billion dollars per year in revenues, every percent,
every basis point of margin translate into into uh into
a lot of profits. So that's what I'm pretty excited
(37:42):
about is I think over the next few years, and
Walmart has many levers to expand margins because of you
know things we talked about, but because of their subscription revenue,
their advertising revenue, they're growing their general merchandise sales. They're
also introducing automation and robotics, and they're in their fulfillment
centers and all of that they can translate into pretty
operating marketing expansion over at least I think the next
three years. And that's why I think the happy premium
(38:05):
can hold. And I think there's still upside to the
stock from here.
Speaker 2 (38:09):
Lots to consider as we wait those earnings from Walmart
due out this Thursday. Thank you for this, Arun, again,
great having you on with us.
Speaker 4 (38:17):
Yeah, thank you.
Speaker 2 (38:18):
That's Arun Sundram, senior equity research analyst at CFIRA. Want
to deliver thanks as well to Stephen Shork of the
Short Group and Eric Balchunis of Bloomberg Intelligence. Thanks to
you as well for joining us on this special hour
of Bloomberg day Break for this president. Stay, I'm Nathan Hager.
Stay with us. Today's top stories and global business headlines
(38:38):
are coming up right now.
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