Don't Turn Your Back On Energy Stocks At These Prices

Stephen Serge Gilfoil. He is the founder and the president of Serge nine eight six l l C. Joining us from the New York Stock Exchange. Serge always a pleasure. Happy Christmas and New Year to you and your family. What do you say to them? What do you say to your family or relatives when they ask you why does stocks go up and down? You know that answer is evolved over time. They don't say why do stocks

go up and down? Now because the way they used to, Because they used to just ask the question the way you just did, and I would try to explain to them how price discovery works at a certain point of sale. Now they would ask probably wider stocks and down go Why do stocks move up and down so quickly and so violently? And now it's largely a function of electronic

trading and trading in fractions of pennies. It's well, it's a kind of throwing a piece, maybe a tree trunk, into a wood chipper and just watching the spray behind the machine. That's kind of how I explained stock trading these days. And Steven, so yesterday, after the decline we had yesterday, you know, I've reached out to a lot of traders that I know, and none of them were around, none of them were working. So I'm who's trading this week?

What's behind these big movements that we're having. Well, maybe they don't have to presently where they used to have to be in an office in Manhattan or on the floor of the New York Stock Exchange or or someplace close to the NASDAQ market side like they used to. They could probably be in Iowa or or out of the country and still have their their machines working for them, will even be making decisions, even if they do it in slow motion like I do, still working through a computer.

I really I can't imagine taking off when the when the volumes you know are going to be light, because that's when you're at your largest risk. Really, and I think you you really have to defend yourself. I'm probably working more hours these days that I do normally. Well, you've got an assistant there, I think, who's got four legs, So that's probably adding to the energy in the office place.

That's okay. So what well, what do you if an investor comes to you and says, how do you make sense of a one thousand, nearly an eleven hundred point gain in the Dow Jones Industrial Average and then the next day you see a decline Right now we're talking about a drop of over four hundred points. How do you explain in rational terms evaluation based on those changes? Well, you you you really cannot justify this through the laws

of supply and demand. But what you have to do is explain to your clients or your friends, or whoever's asking you that the machines are designed to overshooting both directions, or they're almost I feel they're designed to cause instability. What you have to do as a trader, is you you even if you prefer fundamental analysis, like that's how I came into this business from a fundamental angle, on

a macro angle. But now you really do have to learn technical analysis because the guys who control of the algorithms, who they hire guys like me who know how to read charts. So if you can learn how to read the charts, you're you're almost in their heads a little bit. And what you have to do as a trader is narrow your book, and you have you have to focus short term instead of long term. You've always been taught

to be a long term investor. Well it's okay if you do that to some degree, but you have to be a short term trader on days like this because because technicals are the only way to get out of

this without a big, big minus sign on your portfolio. Well, I mean, when you look at the drop that we've had in the market, you know, seventent or so on the SMP since the beginning of October, do you think this has been a fair repricing of some of these assets when you look at some of those fundamental measures, Uh, this is a fair repricing if indeed we are headed into a recession in late the transports, it, down commodities,

down stocks have been violently devalued. I think they're about just barely fifteen times before we're looking earnings now, and that's only if those earnings are actually decent or or as expected. So yes, if we are slowing down to the point where we probably will experience a recession, maybe globally but domestically at least the then items are being fairly priced at this point, and it's probably more to go. I would think that as we move into the new year,

we're gonna we might see a little seasonal bouncy. We got some of that yesterday. There's going to be a rebound going into the end of the year. So next week you might feel good about your stocks, but it's probably going to be short lived because we're going to be up against some serious headline risk regarding politics, geo politics,

the trade wars. All of these are going to produce negative headlines multiple times and likely or likelihood before they produce any possibility of a positive outcome, and the market will die a thousand deaths over that time. Unless you know how to defend yourself. Sorge. Let's just assume that there's an investor out there who's willing to wait five years. What would you recommend they do. All right. I would actually tell that that investor to split his book in

two ways. One, you want you want the income, so you need to go to the dividend names. Maybe not utility names, but you need you need dividend names in your book. Is you need to provide income while you wait, and you don't want to completely exclude yourself and growth. So you actually want to expose yourself a little to energy because even though it's dangerous right now, they still pay the dividend and if they're they're the only dividend payers out there that if there is growth, they're gonna

grit with it. And you need the cloud. You need the cloud because that's where potential growth is going to be. And they're not exposed to China for the most part. So this is this is the part of technology that will survive much better than semi conductors because they're oversupplied

right now. Yeah, I tell you about but a little bit more about the growth side of this, because I mean, obviously you know this bull market, it was easy to find growth, and now we're at a stage where even though we're not falling off a cliff, it's a lot harder to find those growth socks. Is there anywhere else other than just some of the cloud software companies where we can find that well cloud and like and like I said the energy, because I think the energy is

kind of it's it's a double edged sword. You're gonna die with the commodity. But if you can wait, they're gonna pay you five six percent. So don't turn you back completely on oil right now, even though it seems difficult. I've actually been buying oil last week and this week got at these horrendous prices, and most of these names

are actually against those purchases already. But I do know that I'm that Royal Dutch Shell is going to pay me six percent, that Excel is going to pay me five percent, that British Petroleum is gonna pay me five percent. So I have a little ligor room here. I can take a little bit of a lass before I'm actually in trouble. So I think I actually think at these prices that energy becomes your the best way to both provide income and a little bit of growth. Many thanks

Stephen Serge Gilfoil. He is the founder of the President's Serge nine eight six LLC. The floor of the new York Stock Exchange and just taking a look right now, remain at the dividend deal the BP it is six point seven percent Romaine. You know, whatever anybody says is going to turn into a year of questioning whether the market can digest very large initial public offerings. Right. I mean we've heard about Lift, We've heard about Uber Valenteer. This is like a huge list of companies that want

to go public. Yeah, and and I mean, you know, who would have thought that this is the environment they're going to try to sell into, assuming they go through with it. But you know there's an appetite out there, right, very good point. Let's find out if there is indeed an appetite. Joining us now is a Tich Davta. He is the chief executive of Equity Zen A Tich. Thanks

for being here. Just give us the outlook for the kinds of companies and the characteristics that they display that you believe are going to go public in Yeah, twenty nineteen is going to be a year where we're not going to see any records being said, with the number of IPOs that we see, it's going to be nowhere near the activity we saw in teen. We might not even hit the i p o s that were slated

to prices this year. What we are going to see though, are some blockbuster I p o s, those companies that are over ten years old now and it's time to move out of the parents basement, out of the private markets into the public markets. I'm talking about names like Uber, Airbnb, Slack. But you talk about moving out of the parents basement the old days of I p o s, These companies moved out of their parents basement at a pretty young age. And I feel like all of these companies you mentioned,

particularly Uber for example, are are pretty weathered companies. On one hand, I guess that could be a good thing, but once you go into the public markets, particularly for the secondary investors, what are they really getting out of this? Hasn't all the growth sort of taken place with these companies that so you're absolutely right in that these companies are a lot more mature than they used to be, you know, twenty years ago when when when companies won public.

You know, equisons business is that of conducting secondary transactions while these companies are still private. So, you know, with not talking about any company in particular, we've now helped well over a hundred firms conduct these secondary transactions, over a dozen of them. A couple dozen of them actually

have gone public since then. And what we see is a growing appetite while these companies are still private, uh in people wanting to invest in these companies and existing shareholders wanting liquidity from these from these companies shares, and as they go public, you know, effectively you can expand the pool of people can access it outside of just

accredited investors. Do you see do you see more activity uh on on your platform nowadays with some of the insiders maybe wanting to sort of you know, take some of the uh you know, whatever potential profits they've already gotten. Has that increased or is it just about the same. You know, our business has kept growing, so I wouldn't say it's specific to anyone company, and we're seeing more activity now than before. I think we're generally seeing more activity.

But frankly, I think a lot of this has to do with education to the broader public that look, before, unless you had ten million dollars, there was no way you can access this asset class in the first place. Uh. You know, you could call up your broker at Goldman

or private wealth manager Morgan Stanley. But outside of that, you had no options today with a business like equities, and we can allow these accredited investors to invest as little as ten thousand dollars into these late stage private companies. What we do see though, is people saying, look, exactly as you said, you know the values being created in the private market. Why am I sitting on the sidelines? Why do you have to continue to wait until this

company's public? And by the way, worth potentially five times more than what I already know is a good stock today. Where's the money going to come from to buy these initial public offerings at a time when people are looking at their year to date performance. For let's say, the SMP five hundred approaching a drop of ten percent, you might have to correct that in about an hour from now. You no, Look, it's a good point. I think what we're seeing here is long term and short term minded

investors coming together. And what we see is long term minded investors. Basically, the reason a lot of these companies try to go public in the first place, the reason they try to pursue the I P or route, is so that they can lock in these you know, these cornerstone investors these anchor investors, the mutual funds out there well, but also they come on to be honest, they just

want to get out. I mean, if you've invested, you've been waiting, waiting, waiting, you want a big pay day, and whether it's Uber or air b and B, you want to get out. That always raises the question if it's such a great investment, why are you selling it? So you know, it definitely used to be the case that the I p O was the liquidity event for all these insiders. I think what we've what we've seen in the last five, six, seven, eight years. EQUITISN has

been around for the last six years. What we've seen is not only the the c suite but also the rank and file be able to get that pay day, you know, over time in bits and piece. Because if you've got a thirty billion valuation for something like Airbnb, boy,

I mean, why wait? You want to be able to take that money and run well, and you're hoping that the thirty billion dollar valuation hopefully can be even bigger, So you want to at least take a few chips off the table, right, and that liquidity we can go towards paying off your loans or buying a house or buying a second house or what have you. It certainly used to be the case that that wasn't possible before.

Now it's possible even in the private markets. The I p O. Isn't this discrete event that it used to be quite as much. Uh you know, but before it was like, oh, you haven't grab duated yet, boom you've you've graduated into the public markets. Now it's a little more continuous than that. And I think what we're gonna see is, uh, you know, a lot of capital coming from individuals who are saying, well, I'm not accredited, I couldn't access this investment before. I still believe this valuation

is going to increase from here. Otherwise we wouldn't have seen a lot of sophisticated investors coming too these stocks while we were still pro Are you hearing or sending hearing or seeing any issues with regards to the valuations on some of these private companies Because we've had at least some of the bigger investors that have been required to disclose their stakes and some of these private companies, we have some some of those valuations ratcheted down a

little bit. What are you saying, you know, you see mutual funds. You know that after report at least quarterly, if non monthly, basically mark their book to market. What we see is they their accuracy uh leaves a little bit to be desired in terms of valuing these private companies. I mean, they're the ones that mark down Dropbox right before Drawbucks announced it was going to go public. Uh. And so there's just not a very strong know they're just not a very strong predictor. It is, of course,

still a signal. And what we're seeing on the private side as far as equities on goes is as we see the order books effectively and legally it's a different structure of course, but effectively, as we see the supply and the demand on the private side start to build up, we can start to see that, you know, where the pricing is going to shake out. This happened quite a bit before Spotify went through with its direct listing, uh, and we were able to get a pretty decent price

um level on that. We gotta leave it there. I want to thank you very much. A teacher doctor, chief executive equity Zen talking all about initial public offerings. This is Bloomberg. I'm Pim Fox along with Romaine Bostick, and we're broadcasting from the Bloomberg Interactor Broker's studios. You know, remain today Saudi Arabia's King Salmon. He named the former finance minister, Ibrahim Alasaf as the foreign minister. He becomes

the kingdom's top diplomat. And here to tell us more about changes at the top of the governing pyramid in Saudi Arabia is Dr Ellen Wald, President of Transversal Consulting. Dr Wald is also a nonresident Senior Fellow at the Atlantic Council's Global Energy Center. Dr Wald, thank you very much for being with us. What did these changes in Saudi Arabian's leadership mean? So it's not unexpected that he was that they were going to reshuffle the Saudi cabinet um,

particularly given what the Saudias have gone through this past year. UM. I think it's significant, uh that certain individuals have remained um Holida Fali, the oil minister, and um the current Finance minister, staying at their post. These are really key positions for the Saudias, and it does seem like the Saudis are very pleased with how they've been been handling them this year um UH Foreign Minister Ada al Jubert, who was used to be the ambassador to the United States,

has been reappointed UM. I would I would say that this is an interesting move because he was you know, young, very well educated. Um it really able I think to connect with UM with foreigners, and he is being replaced with someone who's older, maybe more experienced, but someone who was detained in the writs for for quite some time.

So it's an interesting move. I would say that perhaps they were not particularly satisfied with the way that at al Jubert handled UH the issues surrounding the Kashogi affair, although I'm not really sure he could have handled them any better than than he did, so it'll be interesting

to see how this how this falls out. It also seems that they're kind of trying to separate UH and and make sure that it seems at least from the outside that King Salmon is playing a greater role, whether he really is playing a greater role, but I do think that this definitely shows the outside world that King Salmon is definitely UM taking a more prominent role in the government. Well, well, that's that was the thing that struck out struck me the most about that the motion

I guess of al Gibert. Is this really a sign that maybe MBS is being reined in a little bit considering what happened with the show Gi affair. You know, frankly, I've always thought that King Salmon was really always you know, kind of behind behind the scenes, and that he shouldn't have been underestimated. But um, it does seem like this

is perhaps the reaction. Perhaps they want someone who, um has maybe a longer presence, someone who's h He's been described as kind of very calm and kind of stay present, and perhaps that's what they're going for. It's definitely a change because the Saudi's traditionally kept their foreign ministers in their posts for very long time, as supposed to having these rapid change is. But we're really we're gonna have

to see how this goes. Some people have said that it reflects kind of a desire to in a sense, rehabilitate the individuals who were detained in the risks. I'm not necessarily sure that that's what's really going on here. Dr Wall, can you explain the US's involvement in Saudi Arabia's war in Yemen? And how this could affect the U S. Saudi relations. Well. The War Yemen is very problematic from the US point of view because, uh, first of all, it hasn't achieved the objectives that it was

supposed to achieve. The entire idea was to eliminate the Iranian backed militia type presence in Yemen. And it's well known that the Iranians are supplying the the forces in Yemen with weapons. And it just seems that this war in a sense, has been going on and on and on.

I think the US perspective was they want combat Iranian expansion in this way, but they want to win actually, and the Tinies haven't necessarily been winning at this and so I think the US perspective at this point is this war needs to be wound down, even if it is not h a case of every every objective has

been achieved or the um whopies have been defeated. A negotiated settlement for this point at the US would probably be preferable, given the fact that public opinion has really turned against the US involvement in this essentially humanitarian catastrophe. When you look at the landscape of the Middle East, the political landscape, the military landscape, the pullback of the US from from a lot of areas in that region, the decline and influence of Saudi Arabian OPEQ in the

oil markets. Who has the most influence in terms of country leaders, Who has the most influence over that region as a whole right now? Well, right now, I think Iran. Iran is definitely playing a major role here. They in a sense, they're calling the shots, and a lot of

other powers are essentially reacting to what Iran does. So there's always this threat Iran seems to like to make that oh maybe it will send its military and close the straits before moons to shipping, and that's that's really not a threat that Iran can seriously follow through on, But just the fact that it likes to make this threat and kind of send everyone into this great hubbub of oh my goodness, what are we going to do? Uh?

You know, Militarily, the U. S. Navy could certainly combat that in a very short amount of time and it wouldn't cause any dislocation. But the fact that Iran likes to make these threats and everyone kind of reacts to them, I think shows that Iran certainly has the upper hand when it comes to creating um dessenter or fomenting instability

in the region. Dr Wad. We've learned that the United Arab Emirates, which is a US ally has reopened its embassy in Damascus, and in a report, the U a E says that the reason that they are normalizing relations with Syria is to quote curb the risks of regional interference in Arab Syrian affairs, and that is described as a reference to Iran's expansionist policies in Syria. Do you

agree with that? Well, I think that that makes a lot of sense from the U a E, UH and other Gulf country's perspectives, is they see the US is kind of drawing back and that leaves the primary forces in UH Syria right now as Russia and Iran. And if they don't want Syria to become an Iranian outpost essentially, then they've got to get in there and do something.

And so opening an embassy is is a very small step towards that, but it's certainly a step, and I do think that in some sense that is actually what the US would like to see. They would like to see their powers in the Middle East, that they are friendly with the U a UH, Saudi Arabia, Egypt, perhaps go in there and play a larger role in UM

in pushing for US goals. So I don't see that necessarily as as something that is negative, but rather they want to play a greater counterpart to Iranian and perhaps even Russian influence in that area. Thanks very much for being with us as always. Dr ellen Wald is the president of Transversal Consulting, a Bloomberg opinion columnist, and non resident Senior Fellow at the Atlantic Council's Global Energy Center. You're listening to Bloomberg Markets. I'm Pim Fox. He's Romaine Bostick.

I'm Pim Fox. He's Romaine Bostick. We are broadcasting from the Bloomberg Interact of Broker's Studios and Romaine, how much shopping did you do during this season? Oh? Way too much. I always go overboard always, yeah, really yeah. You got a lot of brown boxes, a lot a lot of brown boxes. We packed them up, put them in the recycling bend. Now we'll go wherever they go. And you even said that sometimes you don't even open the presence because you got so much. Well, you know sometimes you lucky.

Let's find out if that's a trend that people all around the United States are experiencing. We've got Craig Johnson. He is the president of Customer Growth Partners. They are based in New Canyan, Connecticut, but he joins us here in studio. Craig, great to see you. I know this is your busiest, busiest time of the year. What can you tell us about the health of the consumer? First. We'll get to the actual retailers in this in a moment. But the consumers have more money in their pocket to spend.

They not only have more money money to spend, they are as fiscally sound as have been in years and otherwids. They've de leverage since the whole cratering of the recession UH brought the debt down. Credit card dead is going up a little bit since then, but on a per capita basis, that's still way way down UM. And they

have money to spend. And unlike ten years ago when people are going crazy on the credit bubble, you know, charging up Christmas presence off of home equity or off a plastic which is not a good way to spend their work, they're spending out of current income, which is the right way to do it. And we've seen those current incomes go up or at least be eighted in somewhere or another. They're up three point one percent, wages are up three point one percent, and um that's the

strongest growth in a decade. And then but it's not simply wages growing up. It's also the fact that versus last year, there's two and a half a million more full time jobs. So those combinations of the two vectors the job growth, that's not unemployment, right, it's the employment number of people, millions of employed that's up two and a half million hips and full time jobs, and wage

growth is up. That combines to about a five increase in real disposable person income overall household and come and that in turns what drives what i was our initial forecast to five point one percent growth, which we said, this is a good season, maybe ben very good. And now what's happening. It's going from good to great good

too great for for whom? Is it for big box retailers? Well, first of all, it's good for the consumer, this is this is positive, but but for retailers it's very very positive and the winners are not always just the usual suspect because a rising tide lists all but you know, most but not all boats. And so the big box guys are doing fine. And this is whether it's the big box discounters, UM, Walmart, Costco, Target, They're doing fine, the big box off pricers, t J's, Burlington Ross all

having strong seasons, UM and some other sectors doing well too. Well. What about the luxury UH retailers and the luxury brands, because well, you know, I'm a man of refined tastes. What can I say? And not? But we saw that, you know, some of these companies kind of ran into a little bit of trouble in their most recent earnings report. UH. Seemed they had like they had more to do of a global issue rather than a US domestic consumer issue. Well,

how's that holding up? Well, you mentioned global, and that is part of the issue. Wanted. Luxury has been you know, really pretty good this year, and it'll grow mid single digits, but we don't see double digit growth occurring there. Some individual categories are great, in other words, UM like luxury outerwear, I think Canada, Goose, think Montclair very very fine. Uh, Tiffany's will do okay, we believe you know, they've been

doing a little bit better. But in general, there's a little bit of softness, just a touch of softness in luxury, heavily due to the foreign tourism issue, meaning mostly that it's a Chinese folks tourism and tourism spinning is a little on the soft side versus past years. You sounded very upbeat here at a time when the stock market is showing a different story. And indeed, right now we're getting word that the euro stocks fifth has dropped more

than one percent, entering the bear market. When or if this continues, does that have an effect on the retail market well to a limited extent. But but what we've seen is as a major disconnect between Wall Street and Main Street. You know, Wall Streets running around the chickens with a head cut off that and then you know

Mr and Mrs main Street is out there spending. They're happy, they have jobs, they're employed, and their wages are up, and so they tune out a lot of the Washington nonsense, the stock market gyrations, and they're just focusing on what they have in their pocket. And even that's been helped because of the plunging gasolene prices down six or two cents a gallon and barely two months. It's unbelievable. And let's put extra money in people's pocket. What do you

see as the outlook now? Uh? And on the short term basis for the retail environment, now that we're sort of past the frenzy of buying for Christmas and the other holidays, you what happens when we get to January? Well, we see, you know, when you know, we've done this for twenty years, and so we see what's driving the growth? Uh? And is are the drivers of it? The fundamentals are

they safe and sound? And again, when you go back to the last time we had, you know, two consecutive years of five percent growth, which is two thousand, five and six. So much of that growth was you know, out of you know, by by leveraging yourself up off of home equity. Now people are spending out of current income.

And as long as people still have jobs, and this job growth is still continuing, and as long as wages keep rising, they may not always rise three point one percent, but you know, somewhere positive, those are the key drivers that create the household cash flow that people spend out but on spending wisely, that's sounds spending. Craig Johnson. Athletisure. This is an acronym that I were, a compound word that I guess I'll have to learn how to use

and more refined context. What is ath leisure and isn't doing well? Uh? Yes? And what it is it's doing well. But another word for it is performance where and so it's basically athletic oriented apparel. And the classic companies to think of are like UM, Lululemon, the athletic brand of Gap, which is Gaps, smallest of their four big brands but the fastest growing UM. But also think outer where, Goose Canada, Goose and Montclair. Uh that those are all the types

of companies that comprise it. But youu a cells at under Armor, cells at Nike, cells obviously Athletisure, Adidas, UM and it's a very hotgoing category. Apparel in general is having its best year in seven years. Um it's gonna be up about at least about six and you know, the final returns aren't in yet. This we're now in retail second season the week between Christmas and New Year's

and this could be a very important week of the year. Um, but athletes, you're in general is in particularly doing good, and apparel in general is doing good. But people aren't wearing this apparel for performance reasons. I mean, part of the whole appeal is that it's so you don't have to go to the gym. You put it on and you lose the weight and you get fit without you say, we're in the second season now, and I actually bought something the other day. I bought some towels they were off,

and I'm very proud of myself. But so do we see this surge of spending uh in this second period? Is that going to be run mainly by discounts or just again, is this just a consumer Uh? Well, the nature of the Christmas to New Year's week to sit what we call it second seeds. The second season of retail has changed over the years. He used to be a place time for returns, exchanges and clearance sounds. Now a lot of smart merchants are actually putting on the

floor new fresh merchandise. Nobody wants to go into the store and get a bunch of picked over stuff that's left over that they saw that three weeks ago. Much appreciated, thanks very much and thanks for your insight as always. Craig Johnson, President, Customer Growth Partners. They're based in New Canaan, Connecticut. Thanks for listening. I'm Pim Fox. He's Romaine Bostic, and this is Bloomberg. Thanks for listening to the Bloomberg P

and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio