October 29, 2024 • 46 mins
What would YOU like to hear about on Bloomberg? Help make shows like ours even better by taking our Bloomberg audience survey.
Watch Alix and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Michael Halen, Bloomberg Intelligence Senior Restaurant and Foodservice Analyst, discusses McDonalds earnings. Gene Munster, Managing Partner at Deepwater Asset Management, joins to talk U.S tech earnings this week. Dana Peterson, Chief Economist at the Conference Board, discusses consumer confidence data. Neil Grossman, Co-Founder & Former CIO at KNG Capital, discusses his outlook on the markets. Ellen Wald, President of Transversal Consulting, joins to discuss oil prices. Carmen Arroyo, Bloomberg Credit Reporter, discusses the Bloomberg Big Take story: “AAA Bonds Go Bust and Reveal Depths of US Office-Market Crash.”
Hosts: Paul Sweeney and Jess Menton
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
Eastern on Affo card playing Android Auto with the Bloomberg
Business App. Listen on demand wherever you get your podcasts,
or watch us live on YouTube.
Speaker 2 (00:23):
Just men sitting in for Alex Steele here today. I'm
pol swhen you're live here on a Bloomberg Interactive Brokers Studio.
Earnings Day, Big Earning, State's Big earnings week actually coming
up a lot of tech names. We'll keep an eye
on that. The story of the morning is, I think
kind of just from the earning's perspective, is Ben McDonald's.
It's been in the news a lot recently with Coli breakout,
(00:44):
cole Ye break up. Anyway, Stock put out some numbers today.
I thought they were okay, but some international weakness. Same
store sales still negative. That's a challenge for them. They
try to build traffic there. Again, this quarter does not
include some of the concerns that they've seen over recent weeks.
Michael Halen joins US senior restaurant in food service analysts
for Bloomberg Intelligence. Hey Mike, what did you make from
(01:05):
McDonald's in the latest quarter, and then like, maybe more importantly,
what is management saying about kind of what they expect
their fourth quarter traffic.
Speaker 3 (01:12):
To look like.
Speaker 4 (01:14):
Yeah, Unfortunately, they didn't give us too much information about
the fourth quarter. I'd say the biggest takeaway from this
call and the reason why the stock is up right now,
although it's you know, not knocking to cover off the ball,
is the fact that they their initiatives, including the five
dollar value meal Buntdill, the five dollars meal deal I
(01:35):
should say, the Chicken Big Mac, and some of the
other initiatives better operations, had actually led to a mid
single digit same store sales increase and positive traffic for
the first three weeks of October, and so the streets
kind of taken that as a positive. Right now, in
terms of the fourth quarter, it was, you know, they
(01:56):
didn't give us much information. We did get a nice
report from Bloomberg second measured Data yesterday that showed Seamstar
sales were down nine percent last week, so that basically
wiped out the mid signal digit gain and they're probably
a little bit from like flat to upp modestly here
in October, right And so yeah, it's it was kind
(02:18):
of a good news bad news last couple of days
for McDonald's.
Speaker 2 (02:22):
Well, John, you were asking, what is a five dollars
meal deal include? It includes a micdouble or a McChicken sandwich,
small fries, four piece chicken, McNuggets, and a small soft
drink that's.
Speaker 5 (02:34):
Solid for five dollars.
Speaker 6 (02:36):
So that's what I missed. The proper dollar menu, Yes
they were, but I was always a big fan of
that in college. But I would point out, like in
twenty fifteen, you saw other companies like Chipotle that were
hit by E. Coli outbreaks and unfortunately at that time,
chapotely had to temporary close a number of restaurants on
the West Coast. What do you think we can glean
from other instances when this has happened in the restaurant
(02:57):
industry and how quickly this could be cleared up?
Speaker 4 (03:01):
Yeah, well we think this is very different than Chipotle.
So a big part of it is just the operational differences.
You know, McDonald's is a clothes kitchen. You know, it
turned out to be the slivered onions, and so it
was one item it wasn't you know, beef patties spread
across many different products. Right, it was just the onions
served in the quarter pounders with cheese. So we think
(03:24):
this outbreak will be smaller than we saw with a
lot of other chains. Chipotle was also unique. Chipotle same
star sales dropped for five straight quarters. They were down
twenty percent that first year. But you know, their food
is out in the open, right, it's behind a sneeze guard,
but you know it can get you know, contaminated by
(03:44):
multiple different employees, even some of the customers potentially, right.
So it's a much harder operation to get right at Chipotle,
And for some of those reasons, we think it's gonna
be a lot shorter, and it's gonna be a lot shallower,
you know. That being said, I think fourth quarter same
store sales are definitely going to take a hit. I
think people are going to be turned off from McDonald's.
(04:05):
I think it will probably spread a little bit into
the first quarter next year. But McDonald's is working hard
to get those same US same store sales kind of
back on the right trunk. You know, it's gonna be
about value. There's gonna be more, you know, the five
dollars meal deal is going to go through your end
and expect to see more of those type promotions next year.
They're gonna roll out in everyday Value menu in the
(04:25):
first quarter. That's should should help boost results next year.
You know, better operations, more chicken sales like the Chicken
Big Mac, more digital sales, and they even hinted at
some fourth quarter food innovation coming out. So they're working
hard to try to try to course correct here.
Speaker 6 (04:45):
Something with McDonald's I always like to keep an eye
on for a telltale sign of consumer confidence is the
French fry indicator because you can tell if how French
fries are done and how the number of people or
fries can indicate sort of sentiment, what do you think
with sort of the latest earnings and what you can
glean from that and what that really means when it
comes to what consumer confidence can tell us when the
French freredicator.
Speaker 4 (05:08):
Well, listen, I'm not looking at the French fry indicator
to be honest, you know, but but you know what
we're seeing and what we think will continue to see
is low income consumers struggling. And so McDonald's that their
strong result in the first three weeks of October. A
lot of that was driven by being able to track
low income consumers in with a very strong price point.
And you know, but inflation continues to hurt these low
(05:31):
income consumers. Right we see this ke shaped economy where
low income consumers are really pulling back on their restaurants spending.
But right now, asset prices are near you know, a
lot of them are near all time high. Stock the
US stock markets near an all time high, Gold and
silver have been ripping higher, bitcoins approaching another all time high.
Home prices have held in throughout the higher rates and
(05:52):
everything else in our near all time highs. And so
we think, you know, upper middle income, middle income, high
higher income consumers are all doing well and spending, and
you know, our chains are trying to attract those customers.
Speaker 2 (06:05):
So, Mike, you, in your research coverage universe, what's kind
of the best name or two or three that kind
of standout as or sector in a restaurant business that
you like better than others?
Speaker 1 (06:16):
Yeah?
Speaker 4 (06:16):
Yeah, Well, I think past Casual is kind of outperformed
a bit that some of the names we cover anyway,
not that the entire industry, but Wingstop has done a
great job attracting both younger and higher income consumers into
their brand and they're absolutely knocking to cover off the ball.
(06:37):
You know, Chipotle has done a great job with their
digital sales and strategic part pricing and they're continuing to
draw consumers that see value on the plate there. And
then Texas Roadhouse is another one that's absolutely crushed it.
Speaker 5 (06:49):
You know, we're not super.
Speaker 4 (06:50):
High on casual dining, but they've been a machine man.
They're they're driving people into the restaurant with a lot
of value on that plate, right, and a very good experience.
And that's another one that's that's killing it. I think
there's Seams sourch sales are actually even better than Chipotle's
over the last five years, trailing.
Speaker 3 (07:08):
So okay, all.
Speaker 1 (07:09):
Right, Mike.
Speaker 2 (07:10):
Always good to catch up with you and get the
latest on the restaurant biz. And McDonald's here today with
their earnings stock trading a little bit higher. Here McMichael Halem.
He's a senior restaurant and food service analysts for Bloomberg Intelligence.
Speaker 1 (07:21):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple.
Speaker 5 (07:28):
Card Play and Android Auto with the Bloomberg Business app.
Speaker 1 (07:31):
You can also listen live on Amazon Alexa from our
flagship New York station. Just say Alexa playing Bloomberg eleven thirty.
Speaker 2 (07:39):
Jess meant sitting in for Alex Steele on Paul Sweeney.
We are live here on Bloomberg Interactive Brokers Studio, streaming
live on YouTube as well. So go check us out there.
Big Tech Earnings it starts today after the close with
your friends at Google, and then we're gonna hear from
you know, Meta and everybody else along the line, Apple
and Amazon and all that kind of good good stuff.
So when you want to talk tech company, you want
(08:00):
to talk tech earnings, you need to talk to Gene Monster,
managing partner and co founder at Loop Ventures. I think
one of the more tenured reasonable voices on all things technology. Gene,
thanks so much for joining us here. Let's start with Google.
We're gonna hear from them after the close. Year This
stacks ABO up a little over twenty percent, but it
just feels like there's some concerns around Google in their
(08:20):
core search business, perhaps under some type of threat from AI.
How do you position the Google story here and what
will you be looking for?
Speaker 7 (08:29):
Paul, you nailed it. I mean that is what I
would identify as the pressure point, the single piece that
matters the most. This is more important than the Google
Cloud number. A lot of investors are going to be
focusing on the Google Cloud, but keep in mind clouds
call it twelve percent of revenue. Search is just over
fifty and cloud is not in front of some existential
(08:49):
threat related to AI. And so the quick backstory is
that Google Search in the March quarter was up fourteen
percent year of year. It was up fourteen percent in
the June quarter, so showed some surprising strength quarter to quarter.
There the streets looking for plus twelve. But this is
where the plot thickens is that in the September quarter,
(09:12):
this will be the first full quarter where AI overviews
powered Google Search in the US. They launched in May,
so it got a partial quarter in the June quarter,
but we're going to see the first full quarter. And
then they launched another one hundred countries in the month
of October, so that's going to impact the December results.
(09:33):
But the reason why this search number is so important
is that if in fact the US search business holds
together for the first full quarter, that would be the
most I think substantial data point that Google investors can
have to feel comfortable about how this transition over the
next one two five years is going to go for Google,
(09:54):
that they're not going to lose share to the likes
of Open Ai, and so I'm really focused on that number.
Just one other kind of the inside baseball here. Google
doesn't break out US search revenue, so we're not going
to get really a clean look at that number. It's
just a global number. They do break out Google revenue
(10:14):
in the US. It was up eighteen percent in the
Just Reporter quarter. It's expected to be up twelve percent
in the September quarter. So if they do better than
that twelve I think it's going to be a good
view of AI overviews and keep Google investors confident that
this company can navigate this seismic change.
Speaker 6 (10:34):
Of course, as you know, Gene, we're going to have
meta platforms after the bell on Wednesday, And when you
look here to date for Meta up about sixty six
percent compared to about twenty percent roughly for Google. What
are you watching when it comes to meta and the
AI story.
Speaker 7 (10:49):
I mean, then the bars much higher the plus twenty
four the streets looking for I think eighteen percent growth
for this quarter or twenty two I should say it
peaked at twenty four percent. Growth is at twenty two percent.
I mean, it really comes down to their advertising growth
and ultimately if they can continue to keep that going,
you know, as impacting all their business. Another important factor
(11:12):
is their daily active users three point three billion. I mean,
this remarkable number, up six percent year of a year,
is up seven percent in the previous quarter. They just
keep cranking, and I think it's testimony to how addictive
Metas products are just really incredible.
Speaker 2 (11:29):
And the stock market agrees with the genius stocks up.
You know, it's been one of the best performers of
kind of the big tech.
Speaker 7 (11:35):
It games, particularly twenty four percent YEP over the past
three months, NAZEKX up seven Paul, Yeah, and it's just
continued to power forward. And I just I would stress
that point that the bar is high from Meta going
into this earnings UH trades at twenty four times. But
this is just an overall revenue growth story. And Zuckerberg
has kind of made the case to investors more recently
(11:57):
at their dev day that you know, they're just going
to be AI across all of their.
Speaker 2 (12:02):
Products and gene There was a time not too far
ago long ago when people are worre concerned about the
spending at Meta, particularly on the metaverse, what's the thinking
now about how management's thinking about that.
Speaker 7 (12:17):
Well, they've gotten to pass because the growth is accelerated
essentially to a kind of had bottom that right around
twelve percent and then accelerated up to twenty four percent
over the past year and a half. And so that
kind of, as I think, kept investors in a comfortable place.
But the spending on reality labs, this is the group
that's predominantly working on some form of AI glasses, something
(12:41):
that's more like the ray bands that they have. They're
very different than Apple's Vision Pro, but the spending on
that group continues to be aggressive, and specifically is that
they're expected to lose about twenty billion dollars this year.
I mean to put that into perspective is that on
a similar type of initiative for Vision Pro, Apple will
spend about two billion dollars in development a year. And
(13:02):
so we're talking about kind of a ten x magnitude
of investment that they're making. And the answer question, Paul,
is that investors are giving Meta a pass right now.
I see their aggressive spending in reality labs as a
win win for Meta long term. If in fact these
wearables do take off with their oryan project in the
(13:22):
next few years, then you're going to see some revenue
growth and that would be viewed as a positive. And
if they don't, if this doesn't take off, they're going
to cut spending and that should be good for earnings.
And so, in kind of a strange twist of events,
this Reality Labs is actually setting up to be a
positive for the stock in the next couple of years
when it comes.
Speaker 6 (13:42):
To people talking about the AI potential slowdown in growth.
But of course there are all those base effects right
when it comes to big tech, because in twenty twenty two,
obviously there was such a low bar. We were in
a bear market. Earnings projections were a lot lower than
obviously last year. Once in Nvidia had that gangbuster revenue
forecast last May in twenty twenty three, obviously the base
(14:03):
effects were a lot more dramatic. So when you're looking
at the kind of year over year growth, the numbers
around twenty percent for the BAG seven obviously not quite
as high as the average more than thirty percent growth
in twenty three, But what do you make of that
when you see more of the growth stocks and in
the projections for their profit growth coming more in line
with the rest of the S and P five hundred
next year.
Speaker 7 (14:24):
I think investors are missing this. I think that this
may be kind of an uncomfortable I believe this is
going to be an uncomfortable truth around AI, and what
it means for big tech is that this is going
to be more significant than what I think. Investors believe.
It's going to grow faster for longer, and I think
what you just described agree with all those facts, and
(14:46):
ultimately there's this sense for investors that were just one
quarter away from some sort of data point that's going
to show that AIS the substance is not going to
reach the hype, and I suspect that, well, we may
get occasional data points that are to kind of the
barish case of AI. The overwhelming body of evidence we're
going to see in the quarters ahead are going to
(15:07):
suggest that this trend is unstoppable. And that's some pretty
high bars I like to be measured in my expectations,
but I do believe that these companies, most of them,
are going to see growth higher than what investors think.
I'm already tuned into the twenty twenty six growth numbers.
Most of them for these big companies are kind of
in the low teens range, and I suspect that the
(15:28):
growth will be mid to high teens.
Speaker 2 (15:30):
Gene, thanks so much for joining us. Really appreciate getting
a few minutes of your time. As always, Gene Mounster.
He's a managing partner. He's a co founder at Loop
Ventures based in Minneapolis.
Speaker 1 (15:40):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on.
Speaker 5 (15:46):
Fo card Playing and Broudoto with the Bloomberg Business app.
Speaker 1 (15:49):
Listen on demand wherever you get your podcasts, or watch
us live on YouTube.
Speaker 2 (15:55):
Custumer competence data came out one away point seven. The
consensus was ninety nine point five prior period was revised
up to ninety nine point two. So a big, big
jump here relative to expectations in the last period. Let's
break it down. Jess re checking with Dana Peterson, chief
economists at the Conference Board. Dana put this number into
context for us. It seems certainly really good relative to
(16:16):
what the market was expecting.
Speaker 8 (16:19):
Yes, definitely, consumers were on the whole pretty happy in
October certainly they think the present situation is better. And
also expectations and notably expectations for jobs were positive for
the first time in almost a year and a half.
So there's really good news out there.
Speaker 6 (16:37):
So what do you think this means as far as
the direction of the economy here, Well, the.
Speaker 8 (16:42):
US economy has been doing quite well, and indeed consumers
have been driving it. We saw on the tracking data
from retail sales and also from the BEA that consumers
are buying goods, they're buying services. That's certainly supporting growth,
and we're seeing that finally show up in confidence. Indeed,
consumers were getting a little bit worried about the labor
market over the summer, but then we had those blockbuster
(17:03):
payrolls numbers. Most consumers are seeing their incomes rise because
wages are elevated. Most consumers are working. We are seeing
a little bit of layoffs here and there, but again,
the predominant sense among consumers, at least for this month,
is that they're okay.
Speaker 2 (17:18):
How much data do you think is impacted at all
by the Fed cutting rates? Does that come into your
calculation here?
Speaker 8 (17:26):
Absolutely? We have one question where we ask about interest
rate expectations, and that measure actually ticked up. And we
do have items where consumers said that they're not as
convinced that rates are going to come off. But then
we did see some who were saying, look, the Fed
has cut interest rates. We're seeing a little bit of
improvement in that. So certainly we're going to need more
interest rate cuts before consumers pretty come out, probably come
(17:49):
out strongly and say yes, we're confident in this rate
cutting cycle. But consumers are starting to get out there
and buy big ticket items because they're cheaper, not so
much because interest rates are lower, but as streets ball,
we think they'll buy more cars and furniture, things that
they need to finance.
Speaker 2 (18:04):
All right, some pretty solid numbers also know the Conference
Board Expectations data point came in at eighty nine point one.
That's versus revised eighty two point eight from last month.
So also in terms of expectations, better than expected. Dana Peterson,
thanks so much for joining us. Dana Peterson a chief
economist at the Conference Board.
Speaker 1 (18:22):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on applecar Play and Android
Auto with the Bloomberg business app. You can also listen
live on Amazon Alexa from our flagship New York station
Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2 (18:40):
Jess Meant and sitting in for Alex Steel today, I'm
Paul Scoeneyer live here in our bloomergen Director Broker Studio.
We're streaming live on YouTube as well. YouTube dot com
head there, search Bloomberg Podcast or Bloomberg Live Radio. That's
where you'll find us. Speaking of YouTube, what would you
like to hear on Bloomberg Radio? Help make shows like
ours even better by taking our Bloomberg audience, Sir, visit
(19:00):
YouTube dot com slash Bloomberg Podcasts and click the link
in our profile or community sector to take the survey,
which is host to buy our partners over at material
Fill it out now at YouTube dot com slash Bloomberg Podcast.
Our next guest. This is how it's gonna work post.
I'm gonna ask a question and I'm gonna turn off
my Mike and John and I are going to sit
here and listen and try to get a little bit
smarter and take notes and take notes. Neil Grossman. He's
(19:22):
a co founder and former CIO of K n G
Capital joints us here in our Bloomberg Interactive Broker studio.
We're in a suit today. Can remember last time I
saw you in a suit?
Speaker 3 (19:31):
Neil.
Speaker 2 (19:31):
We got a lot of economic data, we got right
smack in the middle of earnings. All that's important. But
I think since we have you here, I would just
love to get your opinions about how you think the
markets are digesting a big, pretty big election next Tuesday.
Are you when you talk to clients, are you saying, hey,
if Trump wins, think this, if Harris wins, think that,
(19:52):
how are you kind of positioning all that?
Speaker 3 (19:55):
Well? I think there's two levels to this. But by
the way, thank you very much for having me. It's
a pleasure as always. At least as a start, both
of the platforms seemed to be talking about spending a
lot of money. So the first question is what's the
impact of that on the economy, on the FED? And
(20:16):
then you can try and maybe zero in on what
the theoretical differences are between the two. Look, if you look
at the economy and where we are and where we've been,
I would look at the July September FED meetings and
just scratch my head we had functionally two fairly when
(20:40):
one fairly weak and one moderate job number job numbers
that propelled the FED to what looked to me like
they were panicking. And it turned out, of course, with
the revision, that that really wasn't the case. So I
think where we find ourselves right now is a couple
of things. One, the labor market is fine. There are
(21:00):
going to be some real unusual impacts over the next
number two because of the Boeing strike and the hurricanes,
which really affected a pretty significant part of the population.
And I don't know how to read the employment numbers now,
but I will tell you this. You know, I think
you know my daughter lives in Saint Pete. If you
go down to Saint Petersburg and you drive, and the
(21:23):
miles and the miles and the miles of people's lives
have been destroyed but have to be rebuilt. There is
an enormous amount of money that is going to be
put to work in this economy. Forget the fact that
we're running eight or nine percent, you know, deficits, which
is historically staggering. The biggest question you might ask yourself
is can they actually address the deficits without having a
(21:45):
significant economic impact, because to go from a deficit growth
rate of eight or nine to back to traditional three
percent probably will be a very difficult task.
Speaker 9 (21:54):
I've heard candidates promising the world, and I don't know
how they're going to fund it. Liz Trust kind of
ran into the same problem. Where are the bond vigilantes
and all this? You're starting to see it a bit.
Look the yield curve. I mean, I think the last
time we were on we were talking about yield curve
structure and it steepened a lot. Yeah, and I suspect
(22:15):
that the long, long, this is one of the problems
with the FED did. I mean, there was absolute panic
in the way they did things. And I mean this
concept of recalibration to me, it's an awful, laughable world word.
It's going to be recalibration is going to become the
new transitory.
Speaker 3 (22:33):
You know. The bottom line is they don't really know
what a neutral rate is, and they certainly don't know
what a neutral rate is when we're spending money fiscally
like its rain. So if they really wanted to try
and ease in and understand the impact, this would have
been a very slow, elongated process. Watching in the meantime,
(22:53):
what happened They not only cut fifty, but they've sort
of promised that they think you're going to be another
two hundred points in short order. And the first thing
that happened, of course, is the yield curves started to
steepen like this note tomorrow if you really want to
look at things. To me, you know, we've the FED
focuses on short rates, but at the end of the day,
long term interest rates are an indicator and a measure
(23:15):
of what you should be expecting for long term growth
and how you manage, you know, the investment and capital
allocation decisions. And I don't see any reason to think
that if they keep cutting with liquidity or already its
just beyond imagination. Stocks at all time highs, very high deficits.
(23:36):
We're still at relatively low rates of unemployment. A lot
of the wage settlements have been very large, by the way,
I mean the last one, which is and we have
not seen most of the government workers union workers ask
can you imagine I mean, I think there are twenty
five million people employed by governments in this country, which
is about one in six. Can you imagine if these
(23:56):
if those union workers are going to insist in the
same nature of wage agreements going forward. I mean, this
can't be.
Speaker 2 (24:05):
Handled so, but I mean in terms of the deficits
in the national debt. I started working on Wall Street
in June of nineteen eighty six. It was an issue.
Then it's still an issue.
Speaker 9 (24:18):
Debt clock, Yes, it is.
Speaker 3 (24:21):
And do you know what do you know what the
unfunded liabilities are? Stud of three hundred trillion, which is
I mean that's dwarfs all the problems. Yes, and part
of that is Look, social Security is going to run
out of money trust fund and then that will go
on to the budget as well.
Speaker 9 (24:35):
So there.
Speaker 3 (24:36):
Look, I don't know if there's time left to solve
the problems or not. I think I don't think history
teaches you that you can avoid reality. And our deficits
relative to the nation's capacity are are certainly put causing
the seams or may cause the seams to burst. And
(24:58):
you know, the sooner you deal with a problem, the
less you usually have to do to solve it, and
the easier the transit.
Speaker 2 (25:05):
But there's just no political there's never ever ever been
in political will to do well.
Speaker 3 (25:09):
How do you, Paul, how do you? How do you look?
I think something on the order of sixty five percent
of the of the working populations pays no net taxes.
Speaker 2 (25:17):
And since they pay no net taxes.
Speaker 3 (25:18):
Yes, when you look at all the benefits and add
it all together, how do you tell people? And I
have this discussion with a lot of people. I mean,
how do you tell them that they can't they're going
to lose something. That's a very difficult thing to start with.
And then you end up with these discussions about well,
you're social Security and Medicare Medicaid need to be cut
and they said, well I paid for this, said, well,
(25:39):
you really didn't pay for it when you look at
the projections. The problem is you're relying on the future
to continue to pay for your problem. And I don't
know the answer to this. I think we've missed opportunity
after opportunity to address it.
Speaker 2 (25:54):
And you know, and again, as john said, I don't
hear either candidate talking about that.
Speaker 3 (25:58):
Nobody can directly even their problem. What's his name? McCarthy
and Mike Johnson, both of them, when asked every time
they sit down to negotiate, the first thing they say,
or entitlements are sacricient, they won't be touched that's functionally
I think. I think the actual number is we historically
take in eighteen percent of GDP and traditionally spend twenty
(26:20):
one percent. And by the way, that eighteen percent is
consistent across almost every tax regimen we've ever seen. But
if you went back twenty years ago, one third of
government spending of that eighteen percent was entitlements. We're beginning
to push. I think we're very close to where almost
every dollar coming into the government is going out in
(26:43):
the form of entitlements, and we're not. You know, so
the extra eight or nine percent or above that or
you know, actually, I guess it's about nine percent of
incremental spending is all deficit funded, and it's going to
get to be it's going to be a very painful.
Speaker 9 (27:00):
There was a time where you had bipartisan kind of consensus,
like a committee Simpson bulls the balls, But I suspect
that environment is long gone though.
Speaker 3 (27:10):
What was Phil Graham's partner's name, and the same thing, Graham.
Speaker 9 (27:13):
Graham, the same thing, you know.
Speaker 3 (27:18):
That's the way. I mean, it's sort of kick it
down and put it to it some sort of you know,
under the counter committee and hopefully you listen.
Speaker 9 (27:26):
But again it doesn't.
Speaker 3 (27:27):
It doesn't.
Speaker 2 (27:27):
Given that dire what do you do in the financing world?
What do you do in the economic the investing world?
How do you think about it?
Speaker 3 (27:34):
Field curve number one. I believe if the FED is
going to continue easing, the long end of the Yeld
curve is going to be under pressure. How high it goes,
that's up to that will be a function of inflation.
I do think you're going to start to see inflation
in ways you don't want to want to. For example,
again the Southeastern issue, used cart prices are already being
(27:54):
pushed very high down there, cost of construction materials going high,
Probably labor calls are going up in those ways. So
some of the broader pictures. That's not the whole United States, obviously,
but there is likely to be cost of housing, by
the way. So I think that there is a lot
of risks that you are going to see higher inflation
(28:14):
numbers over the next six to eighteen months just from that. Now,
was that going to be from a two and a
quarter in two and a half or is it going
to be from a three or is it two? I
don't know, but I suspect that the progress towards lower
inflation is going to find itself struggling for the moment.
Speaker 2 (28:31):
So what does the Fed do November seventh, here, two
days after the election. We probably won't know, you know,
who's the one.
Speaker 3 (28:38):
I suspect they have more room to say, look things
of the data since we talked about this has been
well above expectations. We'll see what the employment problem is.
The employment data could be really weak, and so they
could take say, look that number is really bad, or
they could say that number is sort of distorted by
factors beyond our control. My suspicion is as supposed to
(29:01):
say that unless you see an inflation rate drop to
two percent or below, and that includes a core rate
which is still above three, that say, drops the two
six all of a sudden. I think they're supposed to say,
we need to you know, we've already had a significant impact,
and other things being equal, we have time to take
(29:22):
our take our time. I don't know if they feel
that they can do that, because I think there are
things like stock markets that they worry about more than
other things.
Speaker 2 (29:30):
And they kind of it's almost like they did set
the expectations for it.
Speaker 9 (29:33):
But that's the problem.
Speaker 3 (29:34):
They shouldn't be setting an expect when they tell you
the data dependent, I guess that's you can laugh about it.
But when they tell you the data the dependent and
the data is up in opposition to what they thought
it was going to be, that they're supposed to, you know,
take a step back and try and understand what they
were doing. So I don't know what they do, but
(29:55):
I suspect given all the current data that nine months
from now, whatever you thought there, we're going to be
in the absence of a significant change. They're going to
be harder than what you thought at the front end,
and they're going to be harder than what your thought
at the back end.
Speaker 2 (30:07):
All right, Neil, great stuff, as always Neil Grossman. He's
the co founder and he's a former CIO of k
n G Capital. Coming into our Bloomberg Interactive Brokers studio.
Just give us some thoughts here as we parse out
this market.
Speaker 1 (30:20):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on applecard Play and Android
Auto with the Bloomberg Business app. You can also listen
live on Amazon Alexa from our flagship New York station.
Just say Alexa playing Bloomberg eleven thirty.
Speaker 2 (30:38):
Let's look at crude oil here. We've had a kind
of a de risking of crude oil in the last
week or so, I guess on the backs of Israel's
retaliation against around was a little bit less than expected,
maybe dialing down the tensions a little bit there. But
whenever we talk about global oil, we want to talk
to Ellen Wald. She's a president of Transversal Consulting. Ellen,
(30:58):
what do you make of kind of what's happening the
global crude oil prices here? Is it's simply kind of
taking maybe a little bit of that geopolitical risk out
of the price of oil.
Speaker 10 (31:08):
Yeah, that's what I think we're seeing. At least yesterday
was quite the day for de risking. I think it's
Israel really made a very concerted effort to let people
believe that they were about to attack Iran's oil production
and export infrastructure, and it seemed that the market was
(31:31):
really taken with this, and there was definitely.
Speaker 11 (31:33):
A lot of talk about, you.
Speaker 10 (31:35):
Know, Israel potentially doing this and the effect it might
have on the market. And so I think that now
that that risk seems to have passed or at least
been postponed for a while. We're seeing oil prices really
come down as a result.
Speaker 11 (31:49):
I do think that that fear was totally misplaced.
Speaker 10 (31:52):
I think Israel cultivated an image that it was going
to do this, even though the likelihood that they would
do that was actually quite small. Also for people who
didn't actually think that that this was going to happen,
there was definitely the possibility to kind of ride this
in in an interesting way. But now that we're past
this you know, kind of hump at least right now, Uh,
(32:14):
there's more of an opportunity for the supply and demand
issues to you know, to come to the forefront.
Speaker 11 (32:21):
And I think that's what we're seeing in oil prices now.
Speaker 6 (32:23):
I'm glad you brought up supply because walk us through
how oil traders are really split right now and whether
OPEC will hike supply in December.
Speaker 10 (32:31):
Yeah, this is I think the really big issue that
you know, oil traders are looking at now because OPEK
has already you know, pushed its plans off once they
made they set up this, this whole plan for these
very gradual increases, they set it up, they announced it.
Speaker 11 (32:47):
They've given the market ample time to get.
Speaker 10 (32:50):
Used to this, and yet we're still seeing it being
pushed off and pushed off. Initially, OPEC's forecasters had a
much much more optimistic picture for what demand was going
to look like this year. I think then other people
did and they've really had to trim that forecast for
for demand growth back. And so as a result, the
group has pushed off its planned to increase production and
(33:12):
to implement this kind of gradual plan. They already pushed
it off, but they're set to start doing this December January,
and so, you know, the big question is now that
demand is looking pretty weak. You know, we're still waiting
to see what's.
Speaker 11 (33:24):
Going on with China.
Speaker 10 (33:26):
Is the group going to you know, make another another
push it off again? And I think that's a really
big question. There definitely seems to be a split. I
think OPEK itself doesn't know. They did recently issue a revision,
a downward revision in their forecast, which could be an
indication that they're setting things up for another uh, you know,
another uh to push it off again when they meet
(33:48):
in December, but you know, no one really knows.
Speaker 2 (33:52):
So Ellen, you mentioned China, What is the feeling about
demand coming out of China here, it's I guess in
the margin it's been weaker than expected. Is that something
that the market things could go into next year.
Speaker 11 (34:04):
I think it is at this point.
Speaker 10 (34:06):
It's very interesting because there's definitely a lot of skepticism
about demand.
Speaker 11 (34:10):
At China where it's going.
Speaker 10 (34:11):
What this stimulus plan that they've been talking about, is
that really going to actually result in higher demand? Is
that really going to provide the kind of economic stimulus
that is needed to really, you know, push oil demand higher.
I think that there's a lot of skepticism about that.
What's interesting, though, is that the CEO of a Ramco
(34:33):
recently spoken he's much more optimistic about demand from China.
Speaker 11 (34:38):
I think that that may impart come from.
Speaker 10 (34:40):
The fact that he's very much focused on crude oil
products and petrochemicals as opposed to just straight crude oil demand.
Speaker 11 (34:48):
The market has been very focused on.
Speaker 10 (34:51):
The diesel the distillate demand in China, which has been
rather rather disappointing, whereas I think he's much more focused
on the petrochemical demand, which he sees as growing as
opposed to just straight crude oil. Which is why there's
kind of disconnect between what a Ramco sees for China
and maybe what other forecasters are are looking at for China.
Speaker 6 (35:13):
As you know, especially when it comes to looking what
oil could mean for the trajectory of the global economy.
I mean, just looking right now, the Atlanta fed GP
model just got updated. It's actually for the third quarter
to two point eight percent, revised slightly lower from three
point three percent recently as well, but still nonetheless it's
been trending higher over the past month as we get
more of the third quarter data coming in here. But
(35:34):
when it comes to OPEC and if whether or not
they push again off those plan increases, what do you
think that could translate when we're looking kind of more
globally and especially US economic growth.
Speaker 11 (35:44):
Yeah, I think.
Speaker 10 (35:44):
It's it's really a big question right now. You know,
I don't think that you can't say, you know, it's
not bad economic growth. We're not you know, we're not
in a depression. We're not we're not seeing things go backwards.
But it's just not the kind of growth numbers that
we were expecting, or they that a lot of people
were expecting to happen. I do think, you know, growth
is cyclical, you know, there are these cycles and you know,
(36:08):
it's not like this is, you know, kind of the
end or anything like that. There's still a lot of
opportunity for growth out there. I do think it, you know,
depends on where you're looking, what indicators are looking at.
Different sectors, you know, are experiencing different different issues right now.
When it comes to crude oil, I do think that
we are seeing a big shift to increased petrochemical production
(36:32):
and and so there's a lot.
Speaker 11 (36:34):
More crew that's going to that, and also.
Speaker 10 (36:36):
A lot more natural gas feedstuck that's going to that
as opposed to just straight crude for transportation fuels. And
so I do think that that we're seeing this as
a shift and a change in the market, and so
we need to maybe look at the numbers a little
bit differently than how we were looking at them previously.
Speaker 2 (36:54):
Ellen, how's the US or the North American oil producer
behaving these days, mournering? Are they are they supportive of
the market or are they, you know, drill baby, Drill's
what's going on with the North American supply source.
Speaker 10 (37:09):
That's a really good question, especially because there's a lot
of speculation about kind of the fracking industry starting to
fall off, the production is gonna you know, start to
decline or at least a second grow. We're really at
a high point right now. I mean we're we're having
massive amounts of production. The US is the largest producer
in the world. You know, the question is can it
go higher or should it go higher?
Speaker 11 (37:31):
And I think that US crew.
Speaker 10 (37:33):
To oil producers are at a very different position now
than they were two years ago, three years ago, five
years ago, certainly, And so there's a lot less emphasis
on you know, we need to drill, baby drill.
Speaker 11 (37:44):
We don't need to drill, baby drill.
Speaker 10 (37:46):
We've got much more complicated production techniques that can get
a lot more out of every well. So there isn't
a need to necessarily drill new wells all the time
in order to produce those barrels. And I think that
because of the map amount of consolidation that we've seen,
they can be a lot more strategic about it. And so, no,
that doesn't mean the US oil entry is abst to
(38:07):
follow a cliff, but it does mean that they are
making more strategic decisions about production and how production is
going to come online, when it's going to come online,
whether it's worthwhile and that can maybe look like fewer
wells being drilled, but it doesn't necessarily mean that, you know,
we're about to hit a cliff and production's going to
necessarily decline.
Speaker 5 (38:28):
Hail.
Speaker 6 (38:28):
Whenever you're talking with oil traders, what are some of
the key sort of technical levels they're looking at, whether
it's a WTI or brint well.
Speaker 10 (38:36):
I think that there's a lot of discussion about, you know, okay,
what's the point that wt t I has to hit
when it's going down in order for the US to
start buying barrels to refill the SPR, because that has
definitely resulted in some you know, increasing in the price today.
Just today the US said, oh we'd like to you know,
we're thinking about buying some more oil for the SPR,
(38:57):
and the prices go up.
Speaker 11 (38:58):
So there's there's.
Speaker 10 (38:59):
Certain it's there. I do think also that there's this
indicator for Opek. You know, Opek wants you know, ex
price per barrel and they're going to do whatever they
have to do.
Speaker 11 (39:07):
To get it.
Speaker 10 (39:08):
I think that that's that's not necessarily the case.
Speaker 11 (39:12):
I do think that Opek and certainly Saudi Arabia would
love to keep Brent around eighty dollars a barrel.
Speaker 10 (39:17):
But I do think they realized that they may not
get that, and they're willing to work with, you know,
within the confines of what they can. But there's certainly
this idea that they'd like it to be a bit higher.
They'd like it to be more closer to eighty than seventy.
Speaker 2 (39:32):
Ellen, thank you so much for joining us. Really appreciate it,
Ellen Waller. She is the president of Transversal Consulting and
a Senior Fellow at the Atlanta Council. Joining us via
zoom talking about global oil.
Speaker 1 (39:43):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on applecard.
Speaker 5 (39:49):
Play and Androyd Auto with the Bloomberg Business.
Speaker 1 (39:52):
You can also listen live on Amazon Alexa from our
flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 2 (40:01):
This is a story I've been wanting to read for
the longest time. In chess. Men's here sitting in fra
Alex Steel and Paul Sweeney, Triple A bonds go bust
and revealed depths of US office market crash. This is
exactly what I've been waiting for.
Speaker 6 (40:15):
We're all about the office.
Speaker 2 (40:17):
Yeah, and I just looked down Third Avenue and I
say empty, empty, empty, half empty. Somebody owns the mortgages
on those things. Yeah, it's gonna have to come home
to roost at some point. Carmen Arroyo and her team
at Bloomberg News. She's a credit reporter for Bloomberg News.
They have this story out here today, Karmer, what are
you finding on some of these bonds that were triple
A rated, which means I don't have any real risk here?
(40:41):
What's happening to some of these real estate backed bonds
that were triple A rated?
Speaker 12 (40:45):
Sure? So in May we saw the first triple A
bond commercial mortgage, triple A bond being hit backed by
a single office property, and then we started like digging
into basically the data to see what other buildings could
get hit. And the results there's a few a ton
of Like the office properties across across the US have
(41:05):
been distressed for years. It just takes a long time
for that to reach bond holders, and now it's starting
to get there. So we kind of like analyze the data.
We saw at least like twelve other buildings are said
to have some type of loss some will be at
the TRIPLEA level, some will be just the investment grade portion.
There's definitely a lot of more pain to come.
Speaker 6 (41:26):
Which regions across the US are most vulnerable.
Speaker 12 (41:30):
It's all over, It's all over the US. Actually we
saw there's buildings in New York, of course, Chicago, La
San Francisco, but there's also buildings in Kansas City. Like
it's it's kind of everywhere.
Speaker 2 (41:41):
But if I'm holding a triple A bond, I expect
to get paid back here. So what's happening to these bonds?
Are they coming up for maturity and then the owner
has to refinance the bond or house this soft playing out?
Speaker 12 (41:54):
Sure, so every triple A bone holder thinks they're going
to get paid back. Actually that's why you buy it.
But they, like a lot of these buildings have not
been receiving interest on the bonds for a while, and
the minute like the presoul's drop and kind of like
the owners of the buildings get rid of them or
like sell them. The losses are realized, and the gist
(42:17):
of it is that the buildings are worth like a
fraction of what they were worth like a few years ago.
So there's just not enough money to pay back everyone,
not even the Triple A holders, and that that's the
whole issue, Like the real estate is just not worth it.
Speaker 6 (42:29):
When you're speaking to triple A bondholders, what are they
telling you as far as why they might still be
holding onto that and what's the risk reward.
Speaker 12 (42:37):
I A lot of the Triple A bondholders will get
some money back, like the lower trenches won't. And I'm
not sure if there's some market for that type of
like those type of bonds at the bit they may
want them.
Speaker 2 (42:51):
And I'm looking at I mean, you have a big
take story, which means it has great graphics in addition
to being well reported, well sourced. Some of these buildings,
I mean New York Chicago, Las, I mean five fifty
five West fitth Street, seven twenty five South Figaroa. I
know that building. But these things are being valued at
significant discounts, right, and some not even covering the amount
of the outstanding loan. So that's where the that's where
(43:13):
the problems come in.
Speaker 12 (43:14):
Yeah, that's the problem. And it's also like a lot
of those buildings depend on one single tenant. So the
minute that tenant's like, look my lease is up, I'm leaving.
I want a newer office. This building is really old.
The bond's just shoppen price because that's where they're getting
the income.
Speaker 6 (43:30):
I think anytime it comes to anything revolving around real estate,
as we know very well, people want to harken back
to the global financial crisis in two thousand and eight.
But this is a very different situation, especially coming out
of the pandemic, and talk to us more about how
this is a very small subset of the bond market
when you're looking at this.
Speaker 12 (43:46):
Yes, definitely, like there's definitely some type of eco to
the like similar to the financial crisis in the sense
that like you don't really see losses on the principal
level and triple A bonds like that hasn't happened since oaight.
But again, like it's just a few bonds with the
commercial mortgage backed securities market.
Speaker 6 (44:02):
Right, So when you're speaking with your sources, I mean,
what are the risks of other broader ripple effects or
any sort of other red flags potentially brewing. And then
maybe the off side of that where there's more optimism
of what could happen.
Speaker 12 (44:14):
Yeah, I think like the risk is mainly for any
building that's old like and that the tenants are walking,
there's going to be issues. But if any new building that,
like you know, has a great reputation has a lot
of tenants, like there's that market is kind of booming
like right now in new issue markets, like buyers are
like just gobbling up the dead like, So it really
(44:34):
depends on the building.
Speaker 9 (44:35):
I used to work in one of those buildings in
the Garments Center.
Speaker 13 (44:38):
Really and talk about old. The elevators would break down
at least once a week, and the elevator, the shaft,
the gears were all made out of wood.
Speaker 6 (44:49):
Did you ever get stuck in one?
Speaker 2 (44:50):
Oh?
Speaker 6 (44:51):
Yeah, all the how long were you?
Speaker 5 (44:54):
Oh?
Speaker 9 (44:54):
I don't remember. Ago Fly had some beers with us.
Speaker 2 (44:57):
So find back in the day karma. Is there any
sense from your reporting that the office real estate market
is at or near bottom or is anybody calling that
or too?
Speaker 12 (45:06):
Yeah, a lot of people are calling that. Like when
we start to see the office buildings get sold, that's
that's where we've reached the bottom and then everything is
going to go up.
Speaker 6 (45:15):
Is there a time period timeline as far as how
long that could take.
Speaker 12 (45:19):
Yeah, it could take a long time because the leases
are so long that tenants may be locked in for
like years, but most people are saying it's between now
in the next few months.
Speaker 1 (45:29):
Wow.
Speaker 2 (45:30):
Interesting because you know there's some iconic buildings here in
your thing. I mean, six hundred California Street in San Francisco,
fifteen hundred Market Street, market in Fifteenth Street in Philly.
These are some big ones. The Aon Center, which was
the former Sears Tower in Chicago. Look at it, I mean,
basically half of it's underwater, so crazy, crazy stuff there.
We knew it was coming, but you just somebody's gonna
(45:52):
have to pay, unfortunately. Carmen Arroyal credit reporter for Bloomberg News,
joining us here on a Bloomberg interactive broker studio. You
can read story and more stories from Bloomberg on at
the Bloomberg Terminal and at Bloomberg dot com slash Big
Take again. The Big Take stories come out every day
from Bloomberg News. They're deep dive stories into really compelling stories,
(46:13):
deeply sourced, deeply researched, great graphics, and we just love
highlighting them whenever we can.
Speaker 9 (46:18):
It's a great read.
Speaker 1 (46:19):
This is the Bloomberg Intelligence podcast, available on Apples, Spotify,
and anywhere else you will get your podcasts. Listen live
each weekday, ten am to noon Eastern on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
and always on the Bloomberg terminal
Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
Eastern on Affo card playing Android Auto with the Bloomberg
Business App. Listen on demand wherever you get your podcasts,
or watch us live on YouTube.
Speaker 2 (00:23):
Just men sitting in for Alex Steele here today. I'm
pol swhen you're live here on a Bloomberg Interactive Brokers Studio.
Earnings Day, Big Earning, State's Big earnings week actually coming
up a lot of tech names. We'll keep an eye
on that. The story of the morning is, I think
kind of just from the earning's perspective, is Ben McDonald's.
It's been in the news a lot recently with Coli breakout,
(00:44):
cole Ye break up. Anyway, Stock put out some numbers today.
I thought they were okay, but some international weakness. Same
store sales still negative. That's a challenge for them. They
try to build traffic there. Again, this quarter does not
include some of the concerns that they've seen over recent weeks.
Michael Halen joins US senior restaurant in food service analysts
for Bloomberg Intelligence. Hey Mike, what did you make from
(01:05):
McDonald's in the latest quarter, and then like, maybe more importantly,
what is management saying about kind of what they expect
their fourth quarter traffic.
Speaker 3 (01:12):
To look like.
Speaker 4 (01:14):
Yeah, Unfortunately, they didn't give us too much information about
the fourth quarter. I'd say the biggest takeaway from this
call and the reason why the stock is up right now,
although it's you know, not knocking to cover off the ball,
is the fact that they their initiatives, including the five
dollar value meal Buntdill, the five dollars meal deal I
(01:35):
should say, the Chicken Big Mac, and some of the
other initiatives better operations, had actually led to a mid
single digit same store sales increase and positive traffic for
the first three weeks of October, and so the streets
kind of taken that as a positive. Right now, in
terms of the fourth quarter, it was, you know, they
(01:56):
didn't give us much information. We did get a nice
report from Bloomberg second measured Data yesterday that showed Seamstar
sales were down nine percent last week, so that basically
wiped out the mid signal digit gain and they're probably
a little bit from like flat to upp modestly here
in October, right And so yeah, it's it was kind
(02:18):
of a good news bad news last couple of days
for McDonald's.
Speaker 2 (02:22):
Well, John, you were asking, what is a five dollars
meal deal include? It includes a micdouble or a McChicken sandwich,
small fries, four piece chicken, McNuggets, and a small soft
drink that's.
Speaker 5 (02:34):
Solid for five dollars.
Speaker 6 (02:36):
So that's what I missed. The proper dollar menu, Yes
they were, but I was always a big fan of
that in college. But I would point out, like in
twenty fifteen, you saw other companies like Chipotle that were
hit by E. Coli outbreaks and unfortunately at that time,
chapotely had to temporary close a number of restaurants on
the West Coast. What do you think we can glean
from other instances when this has happened in the restaurant
(02:57):
industry and how quickly this could be cleared up?
Speaker 4 (03:01):
Yeah, well we think this is very different than Chipotle.
So a big part of it is just the operational differences.
You know, McDonald's is a clothes kitchen. You know, it
turned out to be the slivered onions, and so it
was one item it wasn't you know, beef patties spread
across many different products. Right, it was just the onions
served in the quarter pounders with cheese. So we think
(03:24):
this outbreak will be smaller than we saw with a
lot of other chains. Chipotle was also unique. Chipotle same
star sales dropped for five straight quarters. They were down
twenty percent that first year. But you know, their food
is out in the open, right, it's behind a sneeze guard,
but you know it can get you know, contaminated by
(03:44):
multiple different employees, even some of the customers potentially, right.
So it's a much harder operation to get right at Chipotle,
And for some of those reasons, we think it's gonna
be a lot shorter, and it's gonna be a lot shallower,
you know. That being said, I think fourth quarter same
store sales are definitely going to take a hit. I
think people are going to be turned off from McDonald's.
(04:05):
I think it will probably spread a little bit into
the first quarter next year. But McDonald's is working hard
to get those same US same store sales kind of
back on the right trunk. You know, it's gonna be
about value. There's gonna be more, you know, the five
dollars meal deal is going to go through your end
and expect to see more of those type promotions next year.
They're gonna roll out in everyday Value menu in the
(04:25):
first quarter. That's should should help boost results next year.
You know, better operations, more chicken sales like the Chicken
Big Mac, more digital sales, and they even hinted at
some fourth quarter food innovation coming out. So they're working
hard to try to try to course correct here.
Speaker 6 (04:45):
Something with McDonald's I always like to keep an eye
on for a telltale sign of consumer confidence is the
French fry indicator because you can tell if how French
fries are done and how the number of people or
fries can indicate sort of sentiment, what do you think
with sort of the latest earnings and what you can
glean from that and what that really means when it
comes to what consumer confidence can tell us when the
French freredicator.
Speaker 4 (05:08):
Well, listen, I'm not looking at the French fry indicator
to be honest, you know, but but you know what
we're seeing and what we think will continue to see
is low income consumers struggling. And so McDonald's that their
strong result in the first three weeks of October. A
lot of that was driven by being able to track
low income consumers in with a very strong price point.
And you know, but inflation continues to hurt these low
(05:31):
income consumers. Right we see this ke shaped economy where
low income consumers are really pulling back on their restaurants spending.
But right now, asset prices are near you know, a
lot of them are near all time high. Stock the
US stock markets near an all time high, Gold and
silver have been ripping higher, bitcoins approaching another all time high.
Home prices have held in throughout the higher rates and
(05:52):
everything else in our near all time highs. And so
we think, you know, upper middle income, middle income, high
higher income consumers are all doing well and spending, and
you know, our chains are trying to attract those customers.
Speaker 2 (06:05):
So, Mike, you, in your research coverage universe, what's kind
of the best name or two or three that kind
of standout as or sector in a restaurant business that
you like better than others?
Speaker 1 (06:16):
Yeah?
Speaker 4 (06:16):
Yeah, Well, I think past Casual is kind of outperformed
a bit that some of the names we cover anyway,
not that the entire industry, but Wingstop has done a
great job attracting both younger and higher income consumers into
their brand and they're absolutely knocking to cover off the ball.
(06:37):
You know, Chipotle has done a great job with their
digital sales and strategic part pricing and they're continuing to
draw consumers that see value on the plate there. And
then Texas Roadhouse is another one that's absolutely crushed it.
Speaker 5 (06:49):
You know, we're not super.
Speaker 4 (06:50):
High on casual dining, but they've been a machine man.
They're they're driving people into the restaurant with a lot
of value on that plate, right, and a very good experience.
And that's another one that's that's killing it. I think
there's Seams sourch sales are actually even better than Chipotle's
over the last five years, trailing.
Speaker 3 (07:08):
So okay, all.
Speaker 1 (07:09):
Right, Mike.
Speaker 2 (07:10):
Always good to catch up with you and get the
latest on the restaurant biz. And McDonald's here today with
their earnings stock trading a little bit higher. Here McMichael Halem.
He's a senior restaurant and food service analysts for Bloomberg Intelligence.
Speaker 1 (07:21):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple.
Speaker 5 (07:28):
Card Play and Android Auto with the Bloomberg Business app.
Speaker 1 (07:31):
You can also listen live on Amazon Alexa from our
flagship New York station. Just say Alexa playing Bloomberg eleven thirty.
Speaker 2 (07:39):
Jess meant sitting in for Alex Steele on Paul Sweeney.
We are live here on Bloomberg Interactive Brokers Studio, streaming
live on YouTube as well. So go check us out there.
Big Tech Earnings it starts today after the close with
your friends at Google, and then we're gonna hear from
you know, Meta and everybody else along the line, Apple
and Amazon and all that kind of good good stuff.
So when you want to talk tech company, you want
(08:00):
to talk tech earnings, you need to talk to Gene Monster,
managing partner and co founder at Loop Ventures. I think
one of the more tenured reasonable voices on all things technology. Gene,
thanks so much for joining us here. Let's start with Google.
We're gonna hear from them after the close. Year This
stacks ABO up a little over twenty percent, but it
just feels like there's some concerns around Google in their
(08:20):
core search business, perhaps under some type of threat from AI.
How do you position the Google story here and what
will you be looking for?
Speaker 7 (08:29):
Paul, you nailed it. I mean that is what I
would identify as the pressure point, the single piece that
matters the most. This is more important than the Google
Cloud number. A lot of investors are going to be
focusing on the Google Cloud, but keep in mind clouds
call it twelve percent of revenue. Search is just over
fifty and cloud is not in front of some existential
(08:49):
threat related to AI. And so the quick backstory is
that Google Search in the March quarter was up fourteen
percent year of year. It was up fourteen percent in
the June quarter, so showed some surprising strength quarter to quarter.
There the streets looking for plus twelve. But this is
where the plot thickens is that in the September quarter,
(09:12):
this will be the first full quarter where AI overviews
powered Google Search in the US. They launched in May,
so it got a partial quarter in the June quarter,
but we're going to see the first full quarter. And
then they launched another one hundred countries in the month
of October, so that's going to impact the December results.
(09:33):
But the reason why this search number is so important
is that if in fact the US search business holds
together for the first full quarter, that would be the
most I think substantial data point that Google investors can
have to feel comfortable about how this transition over the
next one two five years is going to go for Google,
(09:54):
that they're not going to lose share to the likes
of Open Ai, and so I'm really focused on that number.
Just one other kind of the inside baseball here. Google
doesn't break out US search revenue, so we're not going
to get really a clean look at that number. It's
just a global number. They do break out Google revenue
(10:14):
in the US. It was up eighteen percent in the
Just Reporter quarter. It's expected to be up twelve percent
in the September quarter. So if they do better than
that twelve I think it's going to be a good
view of AI overviews and keep Google investors confident that
this company can navigate this seismic change.
Speaker 6 (10:34):
Of course, as you know, Gene, we're going to have
meta platforms after the bell on Wednesday, And when you
look here to date for Meta up about sixty six
percent compared to about twenty percent roughly for Google. What
are you watching when it comes to meta and the
AI story.
Speaker 7 (10:49):
I mean, then the bars much higher the plus twenty
four the streets looking for I think eighteen percent growth
for this quarter or twenty two I should say it
peaked at twenty four percent. Growth is at twenty two percent.
I mean, it really comes down to their advertising growth
and ultimately if they can continue to keep that going,
you know, as impacting all their business. Another important factor
(11:12):
is their daily active users three point three billion. I mean,
this remarkable number, up six percent year of a year,
is up seven percent in the previous quarter. They just
keep cranking, and I think it's testimony to how addictive
Metas products are just really incredible.
Speaker 2 (11:29):
And the stock market agrees with the genius stocks up.
You know, it's been one of the best performers of
kind of the big tech.
Speaker 7 (11:35):
It games, particularly twenty four percent YEP over the past
three months, NAZEKX up seven Paul, Yeah, and it's just
continued to power forward. And I just I would stress
that point that the bar is high from Meta going
into this earnings UH trades at twenty four times. But
this is just an overall revenue growth story. And Zuckerberg
has kind of made the case to investors more recently
(11:57):
at their dev day that you know, they're just going
to be AI across all of their.
Speaker 2 (12:02):
Products and gene There was a time not too far
ago long ago when people are worre concerned about the
spending at Meta, particularly on the metaverse, what's the thinking
now about how management's thinking about that.
Speaker 7 (12:17):
Well, they've gotten to pass because the growth is accelerated
essentially to a kind of had bottom that right around
twelve percent and then accelerated up to twenty four percent
over the past year and a half. And so that
kind of, as I think, kept investors in a comfortable place.
But the spending on reality labs, this is the group
that's predominantly working on some form of AI glasses, something
(12:41):
that's more like the ray bands that they have. They're
very different than Apple's Vision Pro, but the spending on
that group continues to be aggressive, and specifically is that
they're expected to lose about twenty billion dollars this year.
I mean to put that into perspective is that on
a similar type of initiative for Vision Pro, Apple will
spend about two billion dollars in development a year. And
(13:02):
so we're talking about kind of a ten x magnitude
of investment that they're making. And the answer question, Paul,
is that investors are giving Meta a pass right now.
I see their aggressive spending in reality labs as a
win win for Meta long term. If in fact these
wearables do take off with their oryan project in the
(13:22):
next few years, then you're going to see some revenue
growth and that would be viewed as a positive. And
if they don't, if this doesn't take off, they're going
to cut spending and that should be good for earnings.
And so, in kind of a strange twist of events,
this Reality Labs is actually setting up to be a
positive for the stock in the next couple of years
when it comes.
Speaker 6 (13:42):
To people talking about the AI potential slowdown in growth.
But of course there are all those base effects right
when it comes to big tech, because in twenty twenty two,
obviously there was such a low bar. We were in
a bear market. Earnings projections were a lot lower than
obviously last year. Once in Nvidia had that gangbuster revenue
forecast last May in twenty twenty three, obviously the base
(14:03):
effects were a lot more dramatic. So when you're looking
at the kind of year over year growth, the numbers
around twenty percent for the BAG seven obviously not quite
as high as the average more than thirty percent growth
in twenty three, But what do you make of that
when you see more of the growth stocks and in
the projections for their profit growth coming more in line
with the rest of the S and P five hundred
next year.
Speaker 7 (14:24):
I think investors are missing this. I think that this
may be kind of an uncomfortable I believe this is
going to be an uncomfortable truth around AI, and what
it means for big tech is that this is going
to be more significant than what I think. Investors believe.
It's going to grow faster for longer, and I think
what you just described agree with all those facts, and
(14:46):
ultimately there's this sense for investors that were just one
quarter away from some sort of data point that's going
to show that AIS the substance is not going to
reach the hype, and I suspect that, well, we may
get occasional data points that are to kind of the
barish case of AI. The overwhelming body of evidence we're
going to see in the quarters ahead are going to
(15:07):
suggest that this trend is unstoppable. And that's some pretty
high bars I like to be measured in my expectations,
but I do believe that these companies, most of them,
are going to see growth higher than what investors think.
I'm already tuned into the twenty twenty six growth numbers.
Most of them for these big companies are kind of
in the low teens range, and I suspect that the
(15:28):
growth will be mid to high teens.
Speaker 2 (15:30):
Gene, thanks so much for joining us. Really appreciate getting
a few minutes of your time. As always, Gene Mounster.
He's a managing partner. He's a co founder at Loop
Ventures based in Minneapolis.
Speaker 1 (15:40):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on.
Speaker 5 (15:46):
Fo card Playing and Broudoto with the Bloomberg Business app.
Speaker 1 (15:49):
Listen on demand wherever you get your podcasts, or watch
us live on YouTube.
Speaker 2 (15:55):
Custumer competence data came out one away point seven. The
consensus was ninety nine point five prior period was revised
up to ninety nine point two. So a big, big
jump here relative to expectations in the last period. Let's
break it down. Jess re checking with Dana Peterson, chief
economists at the Conference Board. Dana put this number into
context for us. It seems certainly really good relative to
(16:16):
what the market was expecting.
Speaker 8 (16:19):
Yes, definitely, consumers were on the whole pretty happy in
October certainly they think the present situation is better. And
also expectations and notably expectations for jobs were positive for
the first time in almost a year and a half.
So there's really good news out there.
Speaker 6 (16:37):
So what do you think this means as far as
the direction of the economy here, Well, the.
Speaker 8 (16:42):
US economy has been doing quite well, and indeed consumers
have been driving it. We saw on the tracking data
from retail sales and also from the BEA that consumers
are buying goods, they're buying services. That's certainly supporting growth,
and we're seeing that finally show up in confidence. Indeed,
consumers were getting a little bit worried about the labor
market over the summer, but then we had those blockbuster
(17:03):
payrolls numbers. Most consumers are seeing their incomes rise because
wages are elevated. Most consumers are working. We are seeing
a little bit of layoffs here and there, but again,
the predominant sense among consumers, at least for this month,
is that they're okay.
Speaker 2 (17:18):
How much data do you think is impacted at all
by the Fed cutting rates? Does that come into your
calculation here?
Speaker 8 (17:26):
Absolutely? We have one question where we ask about interest
rate expectations, and that measure actually ticked up. And we
do have items where consumers said that they're not as
convinced that rates are going to come off. But then
we did see some who were saying, look, the Fed
has cut interest rates. We're seeing a little bit of
improvement in that. So certainly we're going to need more
interest rate cuts before consumers pretty come out, probably come
(17:49):
out strongly and say yes, we're confident in this rate
cutting cycle. But consumers are starting to get out there
and buy big ticket items because they're cheaper, not so
much because interest rates are lower, but as streets ball,
we think they'll buy more cars and furniture, things that
they need to finance.
Speaker 2 (18:04):
All right, some pretty solid numbers also know the Conference
Board Expectations data point came in at eighty nine point one.
That's versus revised eighty two point eight from last month.
So also in terms of expectations, better than expected. Dana Peterson,
thanks so much for joining us. Dana Peterson a chief
economist at the Conference Board.
Speaker 1 (18:22):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on applecar Play and Android
Auto with the Bloomberg business app. You can also listen
live on Amazon Alexa from our flagship New York station
Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2 (18:40):
Jess Meant and sitting in for Alex Steel today, I'm
Paul Scoeneyer live here in our bloomergen Director Broker Studio.
We're streaming live on YouTube as well. YouTube dot com
head there, search Bloomberg Podcast or Bloomberg Live Radio. That's
where you'll find us. Speaking of YouTube, what would you
like to hear on Bloomberg Radio? Help make shows like
ours even better by taking our Bloomberg audience, Sir, visit
(19:00):
YouTube dot com slash Bloomberg Podcasts and click the link
in our profile or community sector to take the survey,
which is host to buy our partners over at material
Fill it out now at YouTube dot com slash Bloomberg Podcast.
Our next guest. This is how it's gonna work post.
I'm gonna ask a question and I'm gonna turn off
my Mike and John and I are going to sit
here and listen and try to get a little bit
smarter and take notes and take notes. Neil Grossman. He's
(19:22):
a co founder and former CIO of K n G
Capital joints us here in our Bloomberg Interactive Broker studio.
We're in a suit today. Can remember last time I
saw you in a suit?
Speaker 3 (19:31):
Neil.
Speaker 2 (19:31):
We got a lot of economic data, we got right
smack in the middle of earnings. All that's important. But
I think since we have you here, I would just
love to get your opinions about how you think the
markets are digesting a big, pretty big election next Tuesday.
Are you when you talk to clients, are you saying, hey,
if Trump wins, think this, if Harris wins, think that,
(19:52):
how are you kind of positioning all that?
Speaker 3 (19:55):
Well? I think there's two levels to this. But by
the way, thank you very much for having me. It's
a pleasure as always. At least as a start, both
of the platforms seemed to be talking about spending a
lot of money. So the first question is what's the
impact of that on the economy, on the FED? And
(20:16):
then you can try and maybe zero in on what
the theoretical differences are between the two. Look, if you look
at the economy and where we are and where we've been,
I would look at the July September FED meetings and
just scratch my head we had functionally two fairly when
(20:40):
one fairly weak and one moderate job number job numbers
that propelled the FED to what looked to me like
they were panicking. And it turned out, of course, with
the revision, that that really wasn't the case. So I
think where we find ourselves right now is a couple
of things. One, the labor market is fine. There are
(21:00):
going to be some real unusual impacts over the next
number two because of the Boeing strike and the hurricanes,
which really affected a pretty significant part of the population.
And I don't know how to read the employment numbers now,
but I will tell you this. You know, I think
you know my daughter lives in Saint Pete. If you
go down to Saint Petersburg and you drive, and the
(21:23):
miles and the miles and the miles of people's lives
have been destroyed but have to be rebuilt. There is
an enormous amount of money that is going to be
put to work in this economy. Forget the fact that
we're running eight or nine percent, you know, deficits, which
is historically staggering. The biggest question you might ask yourself
is can they actually address the deficits without having a
(21:45):
significant economic impact, because to go from a deficit growth
rate of eight or nine to back to traditional three
percent probably will be a very difficult task.
Speaker 9 (21:54):
I've heard candidates promising the world, and I don't know
how they're going to fund it. Liz Trust kind of
ran into the same problem. Where are the bond vigilantes
and all this? You're starting to see it a bit.
Look the yield curve. I mean, I think the last
time we were on we were talking about yield curve
structure and it steepened a lot. Yeah, and I suspect
(22:15):
that the long, long, this is one of the problems
with the FED did. I mean, there was absolute panic
in the way they did things. And I mean this
concept of recalibration to me, it's an awful, laughable world word.
It's going to be recalibration is going to become the
new transitory.
Speaker 3 (22:33):
You know. The bottom line is they don't really know
what a neutral rate is, and they certainly don't know
what a neutral rate is when we're spending money fiscally
like its rain. So if they really wanted to try
and ease in and understand the impact, this would have
been a very slow, elongated process. Watching in the meantime,
(22:53):
what happened They not only cut fifty, but they've sort
of promised that they think you're going to be another
two hundred points in short order. And the first thing
that happened, of course, is the yield curves started to
steepen like this note tomorrow if you really want to
look at things. To me, you know, we've the FED
focuses on short rates, but at the end of the day,
long term interest rates are an indicator and a measure
(23:15):
of what you should be expecting for long term growth
and how you manage, you know, the investment and capital
allocation decisions. And I don't see any reason to think
that if they keep cutting with liquidity or already its
just beyond imagination. Stocks at all time highs, very high deficits.
(23:36):
We're still at relatively low rates of unemployment. A lot
of the wage settlements have been very large, by the way,
I mean the last one, which is and we have
not seen most of the government workers union workers ask
can you imagine I mean, I think there are twenty
five million people employed by governments in this country, which
is about one in six. Can you imagine if these
(23:56):
if those union workers are going to insist in the
same nature of wage agreements going forward. I mean, this
can't be.
Speaker 2 (24:05):
Handled so, but I mean in terms of the deficits
in the national debt. I started working on Wall Street
in June of nineteen eighty six. It was an issue.
Then it's still an issue.
Speaker 9 (24:18):
Debt clock, Yes, it is.
Speaker 3 (24:21):
And do you know what do you know what the
unfunded liabilities are? Stud of three hundred trillion, which is
I mean that's dwarfs all the problems. Yes, and part
of that is Look, social Security is going to run
out of money trust fund and then that will go
on to the budget as well.
Speaker 9 (24:35):
So there.
Speaker 3 (24:36):
Look, I don't know if there's time left to solve
the problems or not. I think I don't think history
teaches you that you can avoid reality. And our deficits
relative to the nation's capacity are are certainly put causing
the seams or may cause the seams to burst. And
(24:58):
you know, the sooner you deal with a problem, the
less you usually have to do to solve it, and
the easier the transit.
Speaker 2 (25:05):
But there's just no political there's never ever ever been
in political will to do well.
Speaker 3 (25:09):
How do you, Paul, how do you? How do you look?
I think something on the order of sixty five percent
of the of the working populations pays no net taxes.
Speaker 2 (25:17):
And since they pay no net taxes.
Speaker 3 (25:18):
Yes, when you look at all the benefits and add
it all together, how do you tell people? And I
have this discussion with a lot of people. I mean,
how do you tell them that they can't they're going
to lose something. That's a very difficult thing to start with.
And then you end up with these discussions about well,
you're social Security and Medicare Medicaid need to be cut
and they said, well I paid for this, said, well,
(25:39):
you really didn't pay for it when you look at
the projections. The problem is you're relying on the future
to continue to pay for your problem. And I don't
know the answer to this. I think we've missed opportunity
after opportunity to address it.
Speaker 2 (25:54):
And you know, and again, as john said, I don't
hear either candidate talking about that.
Speaker 3 (25:58):
Nobody can directly even their problem. What's his name? McCarthy
and Mike Johnson, both of them, when asked every time
they sit down to negotiate, the first thing they say,
or entitlements are sacricient, they won't be touched that's functionally
I think. I think the actual number is we historically
take in eighteen percent of GDP and traditionally spend twenty
(26:20):
one percent. And by the way, that eighteen percent is
consistent across almost every tax regimen we've ever seen. But
if you went back twenty years ago, one third of
government spending of that eighteen percent was entitlements. We're beginning
to push. I think we're very close to where almost
every dollar coming into the government is going out in
(26:43):
the form of entitlements, and we're not. You know, so
the extra eight or nine percent or above that or
you know, actually, I guess it's about nine percent of
incremental spending is all deficit funded, and it's going to
get to be it's going to be a very painful.
Speaker 9 (27:00):
There was a time where you had bipartisan kind of consensus,
like a committee Simpson bulls the balls, But I suspect
that environment is long gone though.
Speaker 3 (27:10):
What was Phil Graham's partner's name, and the same thing, Graham.
Speaker 9 (27:13):
Graham, the same thing, you know.
Speaker 3 (27:18):
That's the way. I mean, it's sort of kick it
down and put it to it some sort of you know,
under the counter committee and hopefully you listen.
Speaker 9 (27:26):
But again it doesn't.
Speaker 3 (27:27):
It doesn't.
Speaker 2 (27:27):
Given that dire what do you do in the financing world?
What do you do in the economic the investing world?
How do you think about it?
Speaker 3 (27:34):
Field curve number one. I believe if the FED is
going to continue easing, the long end of the Yeld
curve is going to be under pressure. How high it goes,
that's up to that will be a function of inflation.
I do think you're going to start to see inflation
in ways you don't want to want to. For example,
again the Southeastern issue, used cart prices are already being
(27:54):
pushed very high down there, cost of construction materials going high,
Probably labor calls are going up in those ways. So
some of the broader pictures. That's not the whole United States, obviously,
but there is likely to be cost of housing, by
the way. So I think that there is a lot
of risks that you are going to see higher inflation
(28:14):
numbers over the next six to eighteen months just from that. Now,
was that going to be from a two and a
quarter in two and a half or is it going
to be from a three or is it two? I
don't know, but I suspect that the progress towards lower
inflation is going to find itself struggling for the moment.
Speaker 2 (28:31):
So what does the Fed do November seventh, here, two
days after the election. We probably won't know, you know,
who's the one.
Speaker 3 (28:38):
I suspect they have more room to say, look things
of the data since we talked about this has been
well above expectations. We'll see what the employment problem is.
The employment data could be really weak, and so they
could take say, look that number is really bad, or
they could say that number is sort of distorted by
factors beyond our control. My suspicion is as supposed to
(29:01):
say that unless you see an inflation rate drop to
two percent or below, and that includes a core rate
which is still above three, that say, drops the two
six all of a sudden. I think they're supposed to say,
we need to you know, we've already had a significant impact,
and other things being equal, we have time to take
(29:22):
our take our time. I don't know if they feel
that they can do that, because I think there are
things like stock markets that they worry about more than
other things.
Speaker 2 (29:30):
And they kind of it's almost like they did set
the expectations for it.
Speaker 9 (29:33):
But that's the problem.
Speaker 3 (29:34):
They shouldn't be setting an expect when they tell you
the data dependent, I guess that's you can laugh about it.
But when they tell you the data the dependent and
the data is up in opposition to what they thought
it was going to be, that they're supposed to, you know,
take a step back and try and understand what they
were doing. So I don't know what they do, but
(29:55):
I suspect given all the current data that nine months
from now, whatever you thought there, we're going to be
in the absence of a significant change. They're going to
be harder than what you thought at the front end,
and they're going to be harder than what your thought
at the back end.
Speaker 2 (30:07):
All right, Neil, great stuff, as always Neil Grossman. He's
the co founder and he's a former CIO of k
n G Capital. Coming into our Bloomberg Interactive Brokers studio.
Just give us some thoughts here as we parse out
this market.
Speaker 1 (30:20):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on applecard Play and Android
Auto with the Bloomberg Business app. You can also listen
live on Amazon Alexa from our flagship New York station.
Just say Alexa playing Bloomberg eleven thirty.
Speaker 2 (30:38):
Let's look at crude oil here. We've had a kind
of a de risking of crude oil in the last
week or so, I guess on the backs of Israel's
retaliation against around was a little bit less than expected,
maybe dialing down the tensions a little bit there. But
whenever we talk about global oil, we want to talk
to Ellen Wald. She's a president of Transversal Consulting. Ellen,
(30:58):
what do you make of kind of what's happening the
global crude oil prices here? Is it's simply kind of
taking maybe a little bit of that geopolitical risk out
of the price of oil.
Speaker 10 (31:08):
Yeah, that's what I think we're seeing. At least yesterday
was quite the day for de risking. I think it's
Israel really made a very concerted effort to let people
believe that they were about to attack Iran's oil production
and export infrastructure, and it seemed that the market was
(31:31):
really taken with this, and there was definitely.
Speaker 11 (31:33):
A lot of talk about, you.
Speaker 10 (31:35):
Know, Israel potentially doing this and the effect it might
have on the market. And so I think that now
that that risk seems to have passed or at least
been postponed for a while. We're seeing oil prices really
come down as a result.
Speaker 11 (31:49):
I do think that that fear was totally misplaced.
Speaker 10 (31:52):
I think Israel cultivated an image that it was going
to do this, even though the likelihood that they would
do that was actually quite small. Also for people who
didn't actually think that that this was going to happen,
there was definitely the possibility to kind of ride this
in in an interesting way. But now that we're past
this you know, kind of hump at least right now, Uh,
(32:14):
there's more of an opportunity for the supply and demand
issues to you know, to come to the forefront.
Speaker 11 (32:21):
And I think that's what we're seeing in oil prices now.
Speaker 6 (32:23):
I'm glad you brought up supply because walk us through
how oil traders are really split right now and whether
OPEC will hike supply in December.
Speaker 10 (32:31):
Yeah, this is I think the really big issue that
you know, oil traders are looking at now because OPEK
has already you know, pushed its plans off once they
made they set up this, this whole plan for these
very gradual increases, they set it up, they announced it.
Speaker 11 (32:47):
They've given the market ample time to get.
Speaker 10 (32:50):
Used to this, and yet we're still seeing it being
pushed off and pushed off. Initially, OPEC's forecasters had a
much much more optimistic picture for what demand was going
to look like this year. I think then other people
did and they've really had to trim that forecast for
for demand growth back. And so as a result, the
group has pushed off its planned to increase production and
(33:12):
to implement this kind of gradual plan. They already pushed
it off, but they're set to start doing this December January,
and so, you know, the big question is now that
demand is looking pretty weak. You know, we're still waiting
to see what's.
Speaker 11 (33:24):
Going on with China.
Speaker 10 (33:26):
Is the group going to you know, make another another
push it off again? And I think that's a really
big question. There definitely seems to be a split. I
think OPEK itself doesn't know. They did recently issue a revision,
a downward revision in their forecast, which could be an
indication that they're setting things up for another uh, you know,
another uh to push it off again when they meet
(33:48):
in December, but you know, no one really knows.
Speaker 2 (33:52):
So Ellen, you mentioned China, What is the feeling about
demand coming out of China here, it's I guess in
the margin it's been weaker than expected. Is that something
that the market things could go into next year.
Speaker 11 (34:04):
I think it is at this point.
Speaker 10 (34:06):
It's very interesting because there's definitely a lot of skepticism
about demand.
Speaker 11 (34:10):
At China where it's going.
Speaker 10 (34:11):
What this stimulus plan that they've been talking about, is
that really going to actually result in higher demand? Is
that really going to provide the kind of economic stimulus
that is needed to really, you know, push oil demand higher.
I think that there's a lot of skepticism about that.
What's interesting, though, is that the CEO of a Ramco
(34:33):
recently spoken he's much more optimistic about demand from China.
Speaker 11 (34:38):
I think that that may impart come from.
Speaker 10 (34:40):
The fact that he's very much focused on crude oil
products and petrochemicals as opposed to just straight crude oil demand.
Speaker 11 (34:48):
The market has been very focused on.
Speaker 10 (34:51):
The diesel the distillate demand in China, which has been
rather rather disappointing, whereas I think he's much more focused
on the petrochemical demand, which he sees as growing as
opposed to just straight crude oil. Which is why there's
kind of disconnect between what a Ramco sees for China
and maybe what other forecasters are are looking at for China.
Speaker 6 (35:13):
As you know, especially when it comes to looking what
oil could mean for the trajectory of the global economy.
I mean, just looking right now, the Atlanta fed GP
model just got updated. It's actually for the third quarter
to two point eight percent, revised slightly lower from three
point three percent recently as well, but still nonetheless it's
been trending higher over the past month as we get
more of the third quarter data coming in here. But
(35:34):
when it comes to OPEC and if whether or not
they push again off those plan increases, what do you
think that could translate when we're looking kind of more
globally and especially US economic growth.
Speaker 11 (35:44):
Yeah, I think.
Speaker 10 (35:44):
It's it's really a big question right now. You know,
I don't think that you can't say, you know, it's
not bad economic growth. We're not you know, we're not
in a depression. We're not we're not seeing things go backwards.
But it's just not the kind of growth numbers that
we were expecting, or they that a lot of people
were expecting to happen. I do think, you know, growth
is cyclical, you know, there are these cycles and you know,
(36:08):
it's not like this is, you know, kind of the
end or anything like that. There's still a lot of
opportunity for growth out there. I do think it, you know,
depends on where you're looking, what indicators are looking at.
Different sectors, you know, are experiencing different different issues right now.
When it comes to crude oil, I do think that
we are seeing a big shift to increased petrochemical production
(36:32):
and and so there's a lot.
Speaker 11 (36:34):
More crew that's going to that, and also.
Speaker 10 (36:36):
A lot more natural gas feedstuck that's going to that
as opposed to just straight crude for transportation fuels. And
so I do think that that we're seeing this as
a shift and a change in the market, and so
we need to maybe look at the numbers a little
bit differently than how we were looking at them previously.
Speaker 2 (36:54):
Ellen, how's the US or the North American oil producer
behaving these days, mournering? Are they are they supportive of
the market or are they, you know, drill baby, Drill's
what's going on with the North American supply source.
Speaker 10 (37:09):
That's a really good question, especially because there's a lot
of speculation about kind of the fracking industry starting to
fall off, the production is gonna you know, start to
decline or at least a second grow. We're really at
a high point right now. I mean we're we're having
massive amounts of production. The US is the largest producer
in the world. You know, the question is can it
go higher or should it go higher?
Speaker 11 (37:31):
And I think that US crew.
Speaker 10 (37:33):
To oil producers are at a very different position now
than they were two years ago, three years ago, five
years ago, certainly, And so there's a lot less emphasis
on you know, we need to drill, baby drill.
Speaker 11 (37:44):
We don't need to drill, baby drill.
Speaker 10 (37:46):
We've got much more complicated production techniques that can get
a lot more out of every well. So there isn't
a need to necessarily drill new wells all the time
in order to produce those barrels. And I think that
because of the map amount of consolidation that we've seen,
they can be a lot more strategic about it. And so, no,
that doesn't mean the US oil entry is abst to
(38:07):
follow a cliff, but it does mean that they are
making more strategic decisions about production and how production is
going to come online, when it's going to come online,
whether it's worthwhile and that can maybe look like fewer
wells being drilled, but it doesn't necessarily mean that, you know,
we're about to hit a cliff and production's going to
necessarily decline.
Speaker 5 (38:28):
Hail.
Speaker 6 (38:28):
Whenever you're talking with oil traders, what are some of
the key sort of technical levels they're looking at, whether
it's a WTI or brint well.
Speaker 10 (38:36):
I think that there's a lot of discussion about, you know, okay,
what's the point that wt t I has to hit
when it's going down in order for the US to
start buying barrels to refill the SPR, because that has
definitely resulted in some you know, increasing in the price today.
Just today the US said, oh we'd like to you know,
we're thinking about buying some more oil for the SPR,
(38:57):
and the prices go up.
Speaker 11 (38:58):
So there's there's.
Speaker 10 (38:59):
Certain it's there. I do think also that there's this
indicator for Opek. You know, Opek wants you know, ex
price per barrel and they're going to do whatever they
have to do.
Speaker 11 (39:07):
To get it.
Speaker 10 (39:08):
I think that that's that's not necessarily the case.
Speaker 11 (39:12):
I do think that Opek and certainly Saudi Arabia would
love to keep Brent around eighty dollars a barrel.
Speaker 10 (39:17):
But I do think they realized that they may not
get that, and they're willing to work with, you know,
within the confines of what they can. But there's certainly
this idea that they'd like it to be a bit higher.
They'd like it to be more closer to eighty than seventy.
Speaker 2 (39:32):
Ellen, thank you so much for joining us. Really appreciate it,
Ellen Waller. She is the president of Transversal Consulting and
a Senior Fellow at the Atlanta Council. Joining us via
zoom talking about global oil.
Speaker 1 (39:43):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on applecard.
Speaker 5 (39:49):
Play and Androyd Auto with the Bloomberg Business.
Speaker 1 (39:52):
You can also listen live on Amazon Alexa from our
flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 2 (40:01):
This is a story I've been wanting to read for
the longest time. In chess. Men's here sitting in fra
Alex Steel and Paul Sweeney, Triple A bonds go bust
and revealed depths of US office market crash. This is
exactly what I've been waiting for.
Speaker 6 (40:15):
We're all about the office.
Speaker 2 (40:17):
Yeah, and I just looked down Third Avenue and I
say empty, empty, empty, half empty. Somebody owns the mortgages
on those things. Yeah, it's gonna have to come home
to roost at some point. Carmen Arroyo and her team
at Bloomberg News. She's a credit reporter for Bloomberg News.
They have this story out here today, Karmer, what are
you finding on some of these bonds that were triple
A rated, which means I don't have any real risk here?
(40:41):
What's happening to some of these real estate backed bonds
that were triple A rated?
Speaker 12 (40:45):
Sure? So in May we saw the first triple A
bond commercial mortgage, triple A bond being hit backed by
a single office property, and then we started like digging
into basically the data to see what other buildings could
get hit. And the results there's a few a ton
of Like the office properties across across the US have
(41:05):
been distressed for years. It just takes a long time
for that to reach bond holders, and now it's starting
to get there. So we kind of like analyze the data.
We saw at least like twelve other buildings are said
to have some type of loss some will be at
the TRIPLEA level, some will be just the investment grade portion.
There's definitely a lot of more pain to come.
Speaker 6 (41:26):
Which regions across the US are most vulnerable.
Speaker 12 (41:30):
It's all over, It's all over the US. Actually we
saw there's buildings in New York, of course, Chicago, La
San Francisco, but there's also buildings in Kansas City. Like
it's it's kind of everywhere.
Speaker 2 (41:41):
But if I'm holding a triple A bond, I expect
to get paid back here. So what's happening to these bonds?
Are they coming up for maturity and then the owner
has to refinance the bond or house this soft playing out?
Speaker 12 (41:54):
Sure, so every triple A bone holder thinks they're going
to get paid back. Actually that's why you buy it.
But they, like a lot of these buildings have not
been receiving interest on the bonds for a while, and
the minute like the presoul's drop and kind of like
the owners of the buildings get rid of them or
like sell them. The losses are realized, and the gist
(42:17):
of it is that the buildings are worth like a
fraction of what they were worth like a few years ago.
So there's just not enough money to pay back everyone,
not even the Triple A holders, and that that's the
whole issue, Like the real estate is just not worth it.
Speaker 6 (42:29):
When you're speaking to triple A bondholders, what are they
telling you as far as why they might still be
holding onto that and what's the risk reward.
Speaker 12 (42:37):
I A lot of the Triple A bondholders will get
some money back, like the lower trenches won't. And I'm
not sure if there's some market for that type of
like those type of bonds at the bit they may
want them.
Speaker 2 (42:51):
And I'm looking at I mean, you have a big
take story, which means it has great graphics in addition
to being well reported, well sourced. Some of these buildings,
I mean New York Chicago, Las, I mean five fifty
five West fitth Street, seven twenty five South Figaroa. I
know that building. But these things are being valued at
significant discounts, right, and some not even covering the amount
of the outstanding loan. So that's where the that's where
(43:13):
the problems come in.
Speaker 12 (43:14):
Yeah, that's the problem. And it's also like a lot
of those buildings depend on one single tenant. So the
minute that tenant's like, look my lease is up, I'm leaving.
I want a newer office. This building is really old.
The bond's just shoppen price because that's where they're getting
the income.
Speaker 6 (43:30):
I think anytime it comes to anything revolving around real estate,
as we know very well, people want to harken back
to the global financial crisis in two thousand and eight.
But this is a very different situation, especially coming out
of the pandemic, and talk to us more about how
this is a very small subset of the bond market
when you're looking at this.
Speaker 12 (43:46):
Yes, definitely, like there's definitely some type of eco to
the like similar to the financial crisis in the sense
that like you don't really see losses on the principal
level and triple A bonds like that hasn't happened since oaight.
But again, like it's just a few bonds with the
commercial mortgage backed securities market.
Speaker 6 (44:02):
Right, So when you're speaking with your sources, I mean,
what are the risks of other broader ripple effects or
any sort of other red flags potentially brewing. And then
maybe the off side of that where there's more optimism
of what could happen.
Speaker 12 (44:14):
Yeah, I think like the risk is mainly for any
building that's old like and that the tenants are walking,
there's going to be issues. But if any new building that,
like you know, has a great reputation has a lot
of tenants, like there's that market is kind of booming
like right now in new issue markets, like buyers are
like just gobbling up the dead like, So it really
(44:34):
depends on the building.
Speaker 9 (44:35):
I used to work in one of those buildings in
the Garments Center.
Speaker 13 (44:38):
Really and talk about old. The elevators would break down
at least once a week, and the elevator, the shaft,
the gears were all made out of wood.
Speaker 6 (44:49):
Did you ever get stuck in one?
Speaker 2 (44:50):
Oh?
Speaker 6 (44:51):
Yeah, all the how long were you?
Speaker 5 (44:54):
Oh?
Speaker 9 (44:54):
I don't remember. Ago Fly had some beers with us.
Speaker 2 (44:57):
So find back in the day karma. Is there any
sense from your reporting that the office real estate market
is at or near bottom or is anybody calling that
or too?
Speaker 12 (45:06):
Yeah, a lot of people are calling that. Like when
we start to see the office buildings get sold, that's
that's where we've reached the bottom and then everything is
going to go up.
Speaker 6 (45:15):
Is there a time period timeline as far as how
long that could take.
Speaker 12 (45:19):
Yeah, it could take a long time because the leases
are so long that tenants may be locked in for
like years, but most people are saying it's between now
in the next few months.
Speaker 1 (45:29):
Wow.
Speaker 2 (45:30):
Interesting because you know there's some iconic buildings here in
your thing. I mean, six hundred California Street in San Francisco,
fifteen hundred Market Street, market in Fifteenth Street in Philly.
These are some big ones. The Aon Center, which was
the former Sears Tower in Chicago. Look at it, I mean,
basically half of it's underwater, so crazy, crazy stuff there.
We knew it was coming, but you just somebody's gonna
(45:52):
have to pay, unfortunately. Carmen Arroyal credit reporter for Bloomberg News,
joining us here on a Bloomberg interactive broker studio. You
can read story and more stories from Bloomberg on at
the Bloomberg Terminal and at Bloomberg dot com slash Big
Take again. The Big Take stories come out every day
from Bloomberg News. They're deep dive stories into really compelling stories,
(46:13):
deeply sourced, deeply researched, great graphics, and we just love
highlighting them whenever we can.
Speaker 9 (46:18):
It's a great read.
Speaker 1 (46:19):
This is the Bloomberg Intelligence podcast, available on Apples, Spotify,
and anywhere else you will get your podcasts. Listen live
each weekday, ten am to noon Eastern on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
and always on the Bloomberg terminal
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Special Summer Offer: Exclusively on Apple Podcasts, try our Dateline Premium subscription completely free for one month! With Dateline Premium, you get every episode ad-free plus exclusive bonus content.