Earnings, IMF, ETFs, and Autos (Podcast)

about these these earnings? What should we be looking for? What are the risks out there? So let's bring in Gina Martin Adams. She's our chief strategist at Bloomberg Intelligence and she joins us here on our Bloomberg Interactive Broker studio. So we appreciate that you get the gold star. You know, we've dealt with a lot until last time we talk to you. It seems like it's been a little bit Gina. We've had a banking crisis, we've had a FED continuing

to raise rates, market pricing in rate cuts. Let's get back the fundamentals stocks earnings. What are you looking for this earnings period? Well, I think it's going to be a pretty ugly earning season. Remember, at the beginning of the year, analysts we're anticipating about a two percent drop in first quarter earnings. They're now anticipating an eight percent decline.

They are also anticipating at least a three quarter earnings recession that began with a fourth quarter of twenty twenty two will extend through the first half of this year. At the very least, probably by the end of earning season, we'll find that it will be a full four quarter earnings recession extending through the third quarter, because the third quarter estimate is on the verge of decline already. Wait, these are your analysts. Is this is the consensus of

Wall Street analysts? Ah, well, what do you think. Look, our model says we get a five percent earnings contraction that was as of Our model is suggesting we were headed into earnings recession as early as the middle of last year. It currently says somewhere between a five and seven percent earnings contraction overall on a trailing twelve month basis. If you look at the trailing twelve month numbers as implied by the analyst consensus, it's closer to a three

and a half percent earnings recession. That's very similar to the twenty fifteen twenty sixteen earnings recession, which was a midscal recession, but certainly very light relative to your typical earnings recession was about fifteen percent. I think what everyone is struggling with right now, as everyone says the market

is fully unprepared for this recession. Unfortunately, I think that the timing is a little bit messy because as of October, our models would suggest actually the market was pricing for up to a fifteen percent recession emerging in twenty twenty three, so we already priced the earnings down draft that we're

going through right now. You have to get to a point where the consensus capitulates so far, so fast that they're now starting to say, look, this could be even worse than fifteen percent before the market even need go lower than it was in October. And I think that that is what is creating a lot of confusion on the part of investors is are we ready for this?

Are we not ready for this? I think the market is very well prepared for this, and that's why it's been able to look through a lot of this weakness, so stocks can perform. The market can perform in a period where earning are coming down yep, And essentially we already priced this in, We've already dealt with it, and we've already recovered on the market, even though you haven't seen it hit the street. Two conditions that need to happen that we need to see happen for that to

remain the base case. The first is estimate revision momentum cannot go lower than it was in October. So intriguingly, estimate revisions reached the worst of their worst momentum in the October November time period as well, So even though analysts are marking down expectations, they're not marking them down as fast as they were in October and November, and

that momentum is really critical to driving price. So yes, you can absolutely see earnings continue to remain weak, and as a matter of fact, on average, stock prices bottom two quarters before earnings ultimately find their bottom. We can continue to see earnings remain weak in stock prices move higher, but we need to see that momentum remain a little

bit less bad, if not start to improve. The second thing that is absolutely critical to maintaining I think market momentum going forward is these do need to continue to cut cost to the point where we can get confident that margins will bottom in the first half of this year. This is something we've been talking about since twenty twenty one. When margin weaknesses started to emerge on the index. It was a very critical sign of weakness coming for the

index itself, and we need to see margins bottom. Now. The analyst consensus says, hey, margins are going to bottom in the first quarter. We're going to see the worst of the worst in the first quarter. It's going to get slightly less bad going into the second quarter, in the third quarter because finally all these cost pressures are starting to abate, and that is really quite a critical to forming that ultimate earnings turn around to twenty twenty four.

Who don't get enough cost cuts. It's a problem when you look across the university of companies that you and Bloomberg Intelligence covers, do you see that happening? I mean, you can tell right before you really get earnings if they fired enough people, if they've so it has it happened. It has happened for some sectors. It has absolutely happened within the communication services space. This is at the forefront of everything. This is the world, This is Paul's comfort zone.

These are the companies that are really at the forefront of this. Yeah, even though this used to be a meta free zone. Yeah, trying to get with the kids. You can't help himself. Netflix, those Disneys of the world. Those companies were at the forefront of the massive margin problems that emerged in twenty twenty one. They are now at the forefront of finding some margin lows through their cost cunning endeavors. You're also seeing tech start to get

in on this game some select consumer discretionary stocks. We're not seeing it end mass, and we may need to see it in mass before we can really create that margin low. You know, you've had very few layoffs in the financial sector, very few layoffs and industrials there are some, but perhaps not enough to create those really solid margin lows. I would anticipate we continue to hear more news about layoffs over the JIL. Corporate America has more work to

do into Q two. As your mentor, yeah, I think a little bit more. They also have a lot of cost rationalization they can do, though, just in just general marketing and expenditure you know, the general expenses can come down as well, which would help that operating leverage. I think the investor relations people like across the corporate America have said to their CFOs and CEOs, cost cuts the market likes, oh yeah, yeah, the stocks go up when

you talk about cutting costs. That's kind of the market right now, as opposed to the market wants to see top line both. So anyway, Gina has been talking about and her team I've been talking about watch those margins for years and been spot on there. Gina Martin Adams, chief equity strategist for Bloomberg Intelligence, joining us here in

our Bloomberg Interactive Broker Studio again. Ernie's kicking off later this week and we'll have full coverage from the bi analysts, from the strategists, and from external analysts, as well as some Sweet Suite people coming in as well. You're listening to the team can'ser Line program, Bloomberg Markets weekdays at ten am Eastern, Bloomberg dot Com, the I Heard Radio app, and the Bloomberg Business app. We're listening on demand wherever you get your podcast. We got interest rates rising early

over the last twelve months. A rate we've never seen before. That can't be good for real estate. So how do you in your world look at real estate today? What's your call? First of all, Paul Mcko morning, thank you again for having me. You're talking about our home Green Street. I hear the kind of David here. I'm fine. Oh okay, there we go. Headphone problem, David, We hear you. Good

man sound check successful sound check before the show. Um, you know and appreciate the Green Street mentioned my farm home and yeah, you're right. Definitely the pre eminent reet and research shop. You know, when we talk about the current environment of reets in a rising at just rate environment, my approach is to focus on the fundamentals. We are, you know, with us focused on the residential reet income et FR ticker as house h a US. We're looking

at the residential reads focused on that rental income. So from a fundamental perspective and a strong employe in an environment that we're experiencing, the rent is paid. A lot of the rental players have tailwords in their favor, which should lead to a pretty decent first quarter earning season for many of these single family rental players. The multifamily

reats and other players that are in the sector. Well, so everything's good now, but what happens when they have to refi at these rates, Well, that's a great question, Matt.

And you know what's interesting is we published a blog recently looking at the balance sheets of our top ten constituents, and what we've noticed is that, first of all, we're operating in a ten year environment right now, looking at my Bloomberg of three forty two, much different than what we experienced during COVID, when the ten year was training around one and a half percent, Much different than just a few months ago when we were training near four percent.

And so, as a result, because of what happened during COVID, many of these reats were able to take advantage of basically unprecedented lending conditions to really well capitalize their balance sheets. And then our blog that I mentioned, we talk about, you know, the top ten holdings are looking at their debt maturities pretty much across the board. We say that right now, for our guys, right now, the average debt maturity over the next three years, it's about twenty percent

of the stack. No more company is rolling more than thirty percent over the next three years. We say, right now, the weighted average debt maturity is about eight years with an average weighted interest rate about three points six percent of pretty much right online. With the tenure where we're

at right now. Result, you know, with many of these guys, you know, predominantly with fixed rate debt, I don't see it being into at this point, and hopefully by the time that it really comes into play, we will see you know, federal reserve interest rates being in a more manageable level. And David, I know you guys focus on a residential real estate biz. So that's regional big time Reasonal, I guess the pandemic has just exacerbated the regional differences.

So is it just as simple as go along the sun Belt? You know, I wish they were that simple, because if that was the answer, Matt, you and I'd be traveling cross country on my G five, going to see all the shows we want to see. Unfortunately, you know, first of all, location matters. You know, we have firms that are out there, we all see them every day, Coast Stars, Zilo, Real Page, redfin et cetera. That are

telling where those migration trends are going. And one of the key takeaways here is that if you were called during COVID, pretty much there was this massive exodus from the coast, from New York, San Francisco, LA. And what we're seeing, especially out of companies like F six, which is a West Coast based apartner route, people are coming back.

And so as a result, though the Sun Belt remains very resilient, you are seeing pockets of strength happen again back in certain parts of New York City, San Francisco, LA, some of the southern parts of California where there are tenants that are moving back into those properties. Interesting. So people are well capitalized, they got right with race during Zerpe, and the tenants are moving back into the you know,

properties they abandoned on the coasts. What about costs? You know, we were just talking with Gina Martin Adams from Bloomberg Intelligence and she was saying, the market, you know, broadly priced in or accession last year, and so we just need to see that hit the street. But the only concern she has when we get earnings this quarter is that companies need to deal with costs. They should hopefully already have taken care of them, but maybe they had

need to into the second quarter. What about reets. Great question, and obviously Gina always delivered the goods when she's either on TV or radio. Super you know, top guests for me to follow up on. You know, a couple of takes here from a cost perspective that is always in the wheelhouse of every single reef management team trying to

focus on can we maximize our revenues through growth? And how can we minimize our expenses through a spect control of about utilizing smart technology a Podding concept, you know, a Podding concept would be, let's say you have three residential properties within a two mile radius. You could use let's say one or two maintenance guys across all three properties,

opposed to planting one at each location. So I think with these guys focused on trying to minute maximize the bottom line, the NI number, you know, that's expense control plays into it. But from a very high level. You know, right now, the rental market remains strong. You're talking about thirty your mortgage rates that are above seven percent. Housing affordability is out the window, especially if you're in one of these desirable markets. So for those factors alone, that

benefits the rental landlord. Remember we're focused on rental income. That rental income that you pay to the landlord as your monthly rent payment goes into investors pockets in the form of dividend income. And that's what we're focused on, is the rent goes up, that dividend hopefully should go up at the end of the day as well. So I'm looking just at the SP five real Estate Investment Trusts index, and year to date it's kind of flat

up a little bit. Where are the riets stocks relative to say navs right here's or value in rates or in a rising in real real estate or a rising interest rate environment, just maybe don't want to get near them. Let me get a little pedestal here and give you the four one one on four to eleven. There, public traded roets are trading at a massive discount to net asset value. That soundlike some of the private vehicles that are out there talking about them trading at premiums to

net asset value. Historically though, and if you go back to some mayreet the National Association or real Estate Investment trust some of data over the long term and rising

periods of rising interest rates. Rates are the sector that you want to be invested in, you know, Traditionally, reets have been that usual go to during flights to safety because again of that dividend income stream, and so you know, until we do see a major reset in this interest rate environment, we're focused on those strong pockets and fundamentals,

you know. Taking it outside of residential, there's a reason why company sectors of industrial reefs or different rets and tower reefs continue to remain very strong because these are properties and sectors that are being used every single day. Self storage there's a there's a merger that's going on right now between extra Space Storage or tickers EXR and Light Life Space Storage tick LSI, and so there's some tail ones in that storage space. Remember we're all holding

more and more stuff. You know, Matt, I can't go to a show without buying another T shirt or a magnet. So you know, that just adds up into the storage unit. And so as a result, these are sectors that are just going to continue to grow. It's those other sectors that are right now. You know, everybody tech heres about offices and malls and what's the long term future for

those sectors. I wish I knew the answer to that, but I can tell you that they're definitely long road ahead for residential reefs as far as that, you know, maintained strength. Don't get me started on malls, dude, When we recently got the summer tour schedule, what are the what are the must see shows? What are the shows that you can't miss? Are you coming back to MSG? I'm hopeful to be at ALL seven MSG. I will be seeing my two hundred show next week at the

Hollywood Bowl in La. Sorry, we can't be together, but if all goes well, yes you will. I will be at ALL seven at MSG again. Vernado, you know, big New York office and plaza, big major redevelopment going on in the area. Currently on pause, I believe, But you know, again, it's hard. You can't walk around New York City without being hit in the face. Buyer reets at pretty much every single intersection. All right, David, good stuff. Appreciate that.

David auerback, managing director at Armada ETF Advisors. So you were talking fish fish. I want to an amazing fish show with David and I guess I hope I'll be doing it again. And they just tour all the time, just like the Dead did they tour? Yeah? Pretty much. I mean they've had hiatuses. I don't know the plural of netword, but they're on tour again and I'm ssighted to see them this summer. This is the last summer

for the Deadenco. By the way, is that right? If you want to see Bobby and Mickey play with John Mayer? This is it? All right? I'll make a note. All right, very good this mister Weir. By the way, do we not believe he's seventy seven? Maybe you're listening to the tap Can's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just

say Alexa play Bloomberg eleven thirty. All right, we got some m and A out there, folks. Gold Giant numont raises new Newcrest bid to nineteen point five billion dollars. Some movement there in the gold space. Grant's spa, Spora? How do I do that? Grant? Grant? How do I pronounce your last name? Spora? It's Spora. Yes, he's a metals of Mining Senior an also Bloomberg Intelligence. So Grant talk to us about this, uh, you know Newmont deal for Newcrest, what's going on there? M yeah, thank you

for having me on. Firstly, in the gold space, I mean they're two drivers for M and A. One is, every year these gold companies eat up their reserves and resources, and if you're of a certain scale, you really struggle to replace those reserves and resources. So the one way to do that quickly and you know arguably well it depends on your valuation, but hopefully not too expensively is through M and A. So that's the one reason. And in this case Newcrest does have a particularly good or

large reserve base. Um, so that's what Newmont are after. And the second reason, or the second rational is there is a school of thought it's the bigger you get in gold, the more you likely to attract the generalist shareholder, as opposed to staying in an inner sector, which is

often perceived by mainstream investors as a bit niche. So you know, if you become the let's say, the the Xon of the gold sector, that'll that'll get you a premium because people will naturally gravitate towards you, so that both of these are at play here. For for new month's bid for New Crest, so nonetheless the shares are down today they were down yesterday. Um, is this price too much? So if it depends on which way you look at it, So if you look at it on

an earning is multiple, the answer is possibly. Um, the implied sort of valuation bid in terms of EVT but dies around nine point six times for New Crest, which is, you know, way more expensive than its next most expensive pier, which is a Nico Eagle at around eight point eight times. So on near terms earnings basis, you know, one would say Newmont is paying up. If you look at it from another perspective, if you look at it in terms

of reserve value, then it actually isn't you know? Then then for instance, Agnico Eagle is you know, is around five hundred and thirty dollars per ounce of reserve, whereas the New Crest but is only around two hundred dollars

an ounce. So on that basis, you know, Um, future future reserves or future growth is not that expensive today's earnings are, so I guess investors today you're saying, well, in the near term that looks a bit expensive, given that that Newmont's shares about the only gold sector gold stock that is down today. So grant in the space is here. I mean, is the scale matter? I mean, when I'm digging the stuff out of the ground, the scale matter? Why do this gale anything? Well again, it's

it's it's in fairness. You know. My initial reaction would be would be to say, look, it's all about quality, right, It's how much value are you adding? What's your your cash flow to share things like all the good good metrics if we look at UM. But so far Newmont, which has built some scale, UM it does trade, also traded a premium versus many of its peers, including Barrick which is his nearest, its next biggest competitor. So let's pulled the valuation gap on its on its nearest competitor.

And you know, in terms of quality, I wouldn't say Newmont is necessarily a better quality company than Barrick UM. But the market seems to um, you know, be wanting scale, So that the market seems to has seems to be indicating that, yes, scale does matter. Um, you know, my, my, my, I would the opposite side of it, and say, you know, I'd rather see the value add in terms of you know, are you able to take those reserves and resources and actually develop them and deliver the cash flow out of

those ouncers. And this deal will will take some time before that comes to light. You know, you could be two to three years before we actually see the benefit of the deal coming out. So how have grant these gold miners then in general traded next to gold? I mean, we've seen the underlying commodity breeds two thousand dollars and get pretty close to an all time high. So in terms of if you look at year to day performance, most of the certainly the more leverage names have done

very very well. So some of your your South African stocks, you know, up fifty percent here to date, really really done very well, massively outperformed gold. Some of the larger cap plays of have marginally outperformed gold. Because of course you still have lingering cost inflation, so that you know what you what you gain on the top line, you're also giving away on the on the bottom line to

a certain extent. And and Newmont because it's in a you know, it's it's the aggressor in a bidding situation has that's kind of underperformed a little bit. So it's the one stock that has actually underperformed slightly. UM. So Yeah, in general, you know, the gold stocks and the more leveraged ones have done very very well here to date. So grant, what's the Is this a space, the mining space, something across all metals. Is this a space that is

ripe for consolidation, has already consolidated? Give us a sense of how that space looks. So I think I think to sort of before I answer that question directly, I would say that the miners are definitely tilting from UM cash returns to too much more growth, so you'll see capital spend rise as well as the sector being much more willing to look at M and A as a

growth angle. So I mean, for the past, i'd say, you know, since about twenty twenty thirteen or so, they've been in the in the sin bin um for for overpaying at the top of the cycle in past them and A transactions. So they've kind of redeemed themselves by by paying lots of you know, good dividends and doing share buybacks and being very very disciplined with their capital.

So they've kind of earned the right to go out and grow again, and we are starting to see that slowly emerge UM, and and so is gold is I would say, is right for consolidation. Some of the other sectors are it's a little bit more challenging UM. But in in base metals, you know, the battery metals, particularly copper, is very sought after and it's quite difficult to get your hands on on really good assets. Gold. Is gold

set to keep rising? I mean two thousand and five dollars a troy ouns right now two thousand and six as the FED taps out at the terminal rate, which is the expectation, and then goes on pause. Are we expecting gold to continue to climb? Oh wish? A good gold looks quite expensive to me at the moment. So at the moment you are, it's kind of anticipating that's

fed on pause. And it's also it's also pricing in quite a hefty let's call an insurance premium against any sort of tale risks that are out there in the financial in the financial system, you know, more banks potentially in trouble. So for me, gold looks expensive, but it's certainly in a bold market. So I wouldn't rule out that it continues to climb, but you know, it's getting more and more expensive versus a whole raft of other

financial metrics. All right, Grant, thanks so much. We appreciate you coming on here talking to us about this deal. In the gold space and kind of the gold market overall. Is Matt was saying, golds north of two hundred dollars lots here and it's yeah, it's pushing up towards all time record grants for he is a metals and mining senior analyst at Bloomberg can tell just looking at a CV.

He was a head of euromining and research at Macquarie, at Deutsche Bank, he did a stint at UBS and he's been at Bloomberg Intelligence now for about three years. You're listening to the Team Cancer Line program Bloomberg Markets weekdays at ten am easting on Bloomberg dot com, the I Heart Radio app, and the Bloomberg Business app. We're listening on demand wherever you get your podcast. We're waiting some comments from Washington, d C. Secretary at Jennet Yellen

scheduled around the bottom of the hour. We'll see how that goes. When she does speak. We'll bring those comments to you. I want to talk about this economy. I want to talk about the FED. So I want to talk to somebody who kind of knows what they're talking about. Here Neil Grossman, co founder and former CIO of t k n G Capital Neil while the rest of us word and an advisor to the Norwegian Central Bank. Oh nice, How did you actually live in Norway? Fortunately, no, you

did it from over here, because Norway's pretty nice. Actually, they usually only invited me to come visit in February, right, exactly. You get some you get some deals there. I guess. Hey, you know, you know, last Friday most of us were not here. Weird markets were closed. We're celebrating Good Friday or however you do that thing. We had another good jobs number. You know, Payrolls are still strong, unemployment rate is low. Can you have that and this greatly anticipated

recession at the same time. It's going to take time to evolve into what I would guess the number. By the way, a couple interesting things about the number, two hundred and thirty six thousand jobs. The trailing twelve months was about three hundred and forty two thousand and that's

the weakest since we've started the real recovery. But if you go back pre COVID, the single strongest twelve month period going back into the eighties, it was three hundred and thirty two thousand jobs over a twelve month period on average. So we're still creating jobs in a sense at a rate that's very, very strong. To get the

unemployment rate up is going to be tremendously difficult. I mean, the one hundred one hundred and twenty five thousands usually viewed to be at break even, So you're going to have to go below that to start to push the rate up. Does this fed have the I don't know if courage is the right word the metal to push through that point, because it's going to be painful for Americans and not politically palatable at all. Well, I mean, again, the question is going to be how you balance that

with inflation. I think most, for the most part, Americans would probably tell you that the inflation they've experienced has been horrifically difficult for them. True, but those who I mean, if you're faced with rising prices are losing your job? I think I know what most Americans, So the question matters how far below. First of all, one hundred and twenty five thousand jobs a month is still not losing job. Even going down to zero job creation is not fully

losing your job. It means, of course, the unemployment rate will be rising. In the background, I think the question is going to be a couple of things. First of all, there is no way to keep adding jobs at this rate unless the workforce starts so expansing the you're going to hit a limit where there's just no jobs available.

I actually think in the background this is what could be the Fed's biggest problem, because if you're not really losing jobs, which are probably likely to find, is that the competition for good employees is going to push wages up. And that's where the FED, I think, is worried. That's

the wage price spiral that they want to avoid. We did just talk with Gina Martin Adams, who runs our equities coverage for Bloomberg Intelligence, and she said, what we need to see, what investors need to see to justify these valuations is real cost cutting and that maybe we haven't seen enough in the first quarter. Corporate America needs to do more in Q two. Yeah, you haven't seen much and Again, the other interesting feature of what's going on is I think people scratched their head why the

economy has tended to remain strong. But what we've had as a very strong nominal economy for the less several years, and what's been coming down is real growth is real growth because inflation has been going up. We're now starting to see inflation come down. Even though nominal growth is coming down, that will still support the real number. The

real problem is going to come. And this is what I'm I've started in a position for for whatever it's worth, I'm beginning to buy protection into the fall because I think in the fall you're going to see the consequences of falling earnings what will be weaker growth, not only nominally, but I think you're going to start to see inflation actually rise as we move into the fall. Wait, before we get further into the economics of it, give us the structure the mechanics of that trade. How do you

buy protection? Well, for me, I'm well, first of a couple of things are interesting, and we've talked about this before. What I've been doing for the last let's say half a year to year, because volatility is high, I'm very I've been very happy writing optionality and getting paid to

take risk. Volatility has come down significantly, So I've started actually by way out the money puts, and I'll build a structure where I can have a fairly significant size, either outright or a spread trade designed to you know, to benefit if we have a fairly sizeable move. I'm not really as worried about a five or six percent move. Those are not the type of things that cause problems. You're protecting against a big ten to twenty percent drop, ye,

or yeah, it could be thirty. I mean, you know some of the streets analysts are looking for three thousand, thirty two fifty that type of drop. I want to make sure I'm making a lot of money on my hedges. How the market drop or do you risk that much in the face of declining interest rates? That story, well, interest rates have fallen, you're talking about the front end.

But the problem is if inflation starts to rise. Listen, remember we had a period less fall where the average inflation rate headline CPI use it was at point one percent. That's fairly low, and so it's going to be a very easy situation for the year on your numbers to start to push up the year on year inflation rate. So if inflation is rising while you're getting slowing earnings and slowing growth, the Fed's hands are still tied functionally. And that's really the situation I think we have to

be worried about. So no cuts at the to the target rate. I mean they've told us time and time again. Jerome Palace said, don't expect any cuts in twenty twenty three, but the market is still pricing in four From the way I read the WORP page, the World Interest Rate probability page, and you're probably someone who's much better at reading that kind of stuff, I'm not sure it really means that the market believes the FED is going to cut rates four times. Maybe they're hedging as well well.

I mean that's where the three month live or or the sofa, you know, futures are priced for. So people are actually out there putting on positions that are directing these these these yielding you know, break evens. I think the answer to all this is and the last time I was on, I think Paul asked me, do I think they're gonna cut rates? The answer is generally know unless, and the unless is a really is a stocking marker

comes apart. I see no wonders. I don't understand why anyone thinks if you're near full employment and the economy is still doing okay, why the FED has any reason

to cut rates. And it's the equity market that feels it needs lower yields to push prices up in this type of environment, the FED, I think, if you're looking at a longer term, you know, a dynamic stochastic process or whatever you want to call it, the FED needs to ring out inflation to actually maximize the outcomes over a long period of time, not just in the next

three year six. Do you think is materially coming down or is it just kind of stuff we see maybe I think some of it is and some of it isn't. If you go into a restaurant and try and right, or you fly or you go to I mean, I can tell you stories about hotel prices just you fall,

you fall off your chair. If you look at some of the things, for example, some of the union issues that are going on now, I think you know, if Rutgers just went on strike, I mean, this is not the type of behavior in a weak economy where you're worried about your job. This is I think you deserve

to pay me more. And the question is if we're going to continue to see upward pressure, I think the doc workers are threatening or on strikeout West again, that by the way, has much more of a flow through impact. You know. Then then you've got the issues that it makes it harder and harder to you know, to look at say commodity price inflation and ignore the other stuff. What do you pay attention to the Jolts data? Yes,

why is it now? I went back and just looked, and it usually is like four to five million, six million. We've been sitting around ten or eleven million openings for a long time. What's happened our workforce world? Well, it's not, by the way, Number one, it's not clear that those are all real jobs. I mean, sometimes if you need, if you need workers, you may be spreading out more job requests and you don't know if that people are on multiple I'm not an expert on the dynamics that's hot,

but that's for sure true. I mean I can just tell you looking for used Hellcat online, use what dodge Challenger Hellcat. A lot of the ads there are no longer relevant, you know. And it's the same thing with job with job openings. Right. You're listening to the team Ken's her live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the I Heard Radio app and the Bloomberg Business App. We're listening on to mand

wherever you get your podcast. What did tree here? We got a new contributor to Bloomberg News in New York. I mean, just been your fault. I was gonna say, not new to me. I've been interviewing her since before she left, then while she was gone, and now she's come back. She's back, Simone Foxman. She is a reporter for Bloomberg News, joining us here in our Bloomberg Interactive Broker studio. So you get a gold star for coming in not phoning it in, Matt Night. We may we

keep notes of that, Simone. You were in Qatar for like how many years? For three and a half years and covering all things, covering all things geopolitics, energy, a little sports. Yeah, I remember we talked to her. We talked to her during the World Cup. That's right, that's right. Oh, that's oh boy, what a great time with or soccer. Still it's still soccer to me. Good all right, But and you also did energy in a big way, right, yeah, yeah, absolutely, So.

I mean you know OPEC plus what was it a week or so ago of yeah, it was it was Sunday before last. Okay, OPEC plus comes in and cuts production. What do you make of that? I mean it sounded pretty coordinated to me. Absolutely. I mean, look, we clearly have golf producers, especially Saudi Arabia, wanting oil prices higher. You know, they're looking for eighty dollars of barrel and that's largely because of the economic transformation that Saudi Arabia

is pursuing. It has these you know, trillion dollar projects right like Neiom and needs the money and needs the money in order to is what. That's the that's the Drey, It's the dream city on the Red Sea. Yes, this is extremely exciting really building it. They are absolutely trying to build it. They are hiring lots of people, slow process. They have big targets for twenty thirty. Actually, so we're

gonna try and see. We're gonna see how this goes over the next course of the cut, next couple of years. This will be the biggest master plan community in the world. When they're really and if you if you check out so the projections, it's this line. I believe it's like fifteen hundred kilombs. There's a very law I don't want to say the wrong number here, extremely length, the massive project,

super futuristic. But you know, in order to do this, they need oil prices at eighty dollars a barrel because you know, their break even is something like seventy dollars a barrel, so they need that extra to balance there. Well, they got it there, right, I mean, WTI trades for around eighty Brent trades for eighty five and yeah, right now. But I mean I think that's why you see a move from OPEC plus you know, this time really led by Saudi Arabia cutting five hundred thousand barrels a day.

That's why you're seeing this because they need that oil price. And so if there's any concern about demand from China going you know, rebounding slower than expect it, concerns about recession in the United States and Europe, you're going to see them be really proactive about this to try and keep those prices high. I think that's just the way they've come out on this so far, it looks good in terms of the European and US economies. Right the China reopening, is that still the big question mark? I

think it's a little bit of everything. I think there's just a broader concern that you know, you're going to see the FED continue to tighten because of things like inflation remaining high, and I think energy doesn't probably help that kind of conversation. But yeah, I mean, look, you know, I think the markets are just jittery and they haven't kind of landed on an ultimate explanation, and you know, unless things turn around in China, then you know, the

whole question is bigger. If you're so for the Qatar economy, is it all energy? A lot energy? I forget the exact breakdown, but they have tried to grow their um non energy sector, tourism, tourism. Wealthy people that are going to be arrested everywhere else in the world love to go to Qatar. Right, Hey, I mean I feel like I feel like you can lump a couple well I shouldn't say this, but there's a lot of things that are the same among these Gulf countries, and there's reasons.

Clutter is no longer part of OPEC, but there's reasons for all of them. No, no geopolitical, but but there's reasons. They all want to keep oil prices relatively high. You look at the UAE as well. I mean, these are all places that see the end of hydrocarbons eventually down the road, and they say, this is our moment to really capitalize on this, to try and build non oil economies that haven't existed before, with the exception maybe of Dubai, which really largely is moved through its oil. And so

again that's why you've seen them act in conjunction. So the place to go a really hot place if you're an international fugitive billionaire has been Dubai. Right, But isn't Saudi Arabia trying to get some market the boost the profile of RIAD to get some of those people. Okay, not the fugitive billionaires. I don't think anyone particularly is

excited about hosting them. But maybe the former king of Spain, right, Okay, Well, Yad's plan is say everyone move your global headquarters here if you want contracts with Saudi Arabia over the coming years. And they've said, you know, a deadline. I believe it's twenty twenty four. But you've got to move here if you want our contracts. You can't have your regional headquarters and somewhere else like Dubai. So this has been a

real challenge to Dubai. You know, the problem with Saudi Arabia is the standard of living is different than you might expect. It's very it's very different from the West. Still feels foreign despite all the reforms that you've seen there in the last couple of years. You know, the looser dress codes, you can find alcohol even though it continues to be illegal. You know, but there's various reasons people don't want to live in real Okay, so where they still do want to live in places like the

UAE or even though hot for that matter. Okay, Well, I guess you know it's interesting here because the Journal had a story out recently, Saudi led oil cuts hit headwind. Some small producers have boosted their output, threatening to undercut the effort. I mean, how powerful is OPEC and OPEC plus today versus I don't know twenty thirty years ago, because it seemed pretty like they still kind of have it.

If you will, they can still move the markets. Obviously, well absolutely, they can still move the markets, but I think the US supply is a real challenge to them. And notably, the US has increased its output by more than a billion barrels a day over the past year. But the Washer Journal story it points out something very

interesting that even members of OPEC the issue. Part of the reason that we had really you know, tight markets, high prices for a little while was because even members of OPEC, like Nigeria, for example, they were overcomplying so weren't producing as much as the quota that they had. So the issue for places like Saudi Arabia is now they're actually producing much closer to the quota they had.

You know, they'd shut down some of their mining and production for COVID nineteen and it was a slow start for them. They there was some theft issues, particularly in Nigeria, but you know, Nigeria adding three hundred fifty thousand barrels per days in September, you know, that erases about half of the Saudi cut at that time. So it's not just the overall OPEC plus move, it's you know, working against these even small players one hundred thousand barrels a

day here, two hundred thousand dollars a day there. You know, that erodes the overall power of someone like Saudi Arabia, Russia. Let's broaden it out to a globe conversation about gas prices, because we were freaking out. We were a year ago, and especially Europe was not in a good place. But they've done relatively well, helped by I guess a milder weather. Right, how does it look now we're heading in the summer,

so we're gonna be okay, but going in the next winter. Yeah, they got super lucky with the weather, and it really meant that storage was not eroded by as much as it could have been. I think we ended the season, the overall season around sixty percent of storage still remaining full. And we heard a lot of folks, you know, I think coming into this, you're saying, well, the twenty twenty three twenty twenty four winter, that's gonna be the main concern.

But now you have Morgan Stanley's saying that they believe that European storage is gonna be a one hundred percent full by late August. That's not so far off from our BNF forecast. Of a couple of weeks ago, ninety percent at the end of September, and this really sets them up for a very positive year here. A lot of this, however, is demand destruction. You know, industry not seeing much higher prices still and therefore you know, slower

European economy. That said, you know, if the concern was that Europe's going to fall apart because there were decline and supplies from Russia, that's just not really what we're seeing. Again. We got a couple of winters here though, to get through. All right, So you've been when you should move back to New York, like two weeks ago? What do you miss most of Qatar? The pool in my building? The pool? No, I miss my friends too, but but you know you live in New York City. Yep, I don't know how.

I mean, there are handful of people who probably have a pool in their building. But you know, good upstairs and what and what were you looking forward to most coming back to New York? Oh, my friends and family we live we live around here. But you know, also good pizza, great pizza. I mean there was good food in cluts are too, but um, you know the differences.

It's not walkable in the same way. It's very new, it's very fresh, and I think it is going to take them time to kind of build more cultural cachet. That's just that's just my opinion. Well, welcome back to the capital of the world. All right, Simon Foxman. She's a reporter for Bloomberg Television and News. Joining us here

in a Bloomberg in Actor Broker studio. You're listening to the tape cans are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty. Looking at the shares of CarMax about eleven percent today, put out some pretty good numbers. Let's get break it all down. We'll

talk all things auto. Since Matt Miller is not here, he went over to the TV studio to get ready for his show. So let's talk cars. Kevin Tyne and Cedar auto analysts for Bloomberg Intelligence. So Carmack's big moving to stock here today. Kevin, what's the story with their earnings. Yeah, you know one of the companies that just given the scale, the experience, the market positioning that you did a decent job with controlling costs in a market where volume is

going to be low for a while. Gross profit per unit was strong, but you know, this is a company that's going to be dealing with a much lower volume environment for probably quite a while, and that's really what derailed you know, some of the pure play online only used sellers like Carvana and Shift and Room and companies like that. So you know, just their market position was was a big advantage to them in this kind of environment where we're just not going to sell as much stuff.

And Kevin I remember just you know, putting in the context when the pandemic hit, you know, Detroit shutdown its lines and so people in the car they had to really start looking at the used car market, and as result, used cars went prices went through the roof. Are we now lapping that? And that tough tough comps? Now, well here's a problem. And you know, everything you hear about the used car market is like, oh just wait, here comes prices just tumbling down, and you know that volume issue.

On the news side, I think bleeds into the use side as time goes by, and especially like in areas like leasing. You know, so when we prior to the pandemic, if you're talking about a seventeen million unit market at thirty percent lease penetration, you know, we had five million off lease vehicles coming every you know, every year. But the pandemic hits and we go down to fourteen million

unit market. And then on the news side, you're not incentivizing those sales because there's so much lower right selling over sticker, no more incentives, no more discounting, so prices are high. So you're getting a market or you had a market that didn't need lease incentives. So leasing goes down to twenty percent in twenty twenty two, and we only did fourteen million units. So you're talking about a world where we're going to see instead of five million

off lease vehicles, two and a half. And so that kind of situation, you're saying, like, Okay, well, how do prices come down if we're going to cut the off lease supply in half? Yep? Yep. So I mean maybe we've seen the declines we're going to see. So so if I'm CarMax am am, I like the new, like the new model year guys. If I'm at like CarMax selling used cars, am I selling fewer units but maybe

at a higher gross margin? I think so. And I think like you said, you know, new vehicle dealers, and I mean full line dealers that are doing new use part service financing Church. All those guys and then they used only and the online used only, like, all those dealers or all those retailers should be prepared in all those business units to be doing less volume except for

probably you know, your service bays, your parts counters. Right as people are going to be holding onto their vehicles longer because of pricing or interest rates, you know, you can expect you know, more wear and tear maintenance. So the full line dealers probably have a little bit of advantage in that business unit specifically, But anybody's selling vehicles new or use prepare for a much lower volume environment.

All right. So again, in my lifetime, the Detroit you know, the auto guys will crank out seventeen million units a year. You're telling me that's kind of a thing of the past, that these guys are going to have the discipline to keep production down at I don't know, fourteen or fifteen million a year. Yeah, I think so, And I don't know, it's so much discipline. I think, you know, this is where the market or the industry has wanted to be forever,

and it all comes down to rationalizing those costs. You know, it was a world where it had to be seventeen million units because you know, there was a lot of fixed costs in their legacy costs, you know, pensions, union, labor related costs. So it's really a different environment now on the on the cost side of the ledger that you just don't need to produce that many vehicles. And I think the other thing that's nice too, when you look at it from that perspective, you got all the

transportation costs, the carrying costs for the dealers. So it's not just the manufacturers that are okay with this lower volume, richer margin mix. It's also the retailers. Right. You don't have you don't have logistics and floor plan expense on a sea of vehicles that you're not going to move for months at a time. Yeah, I guess so. I mean it sounds like, you know, this is the best spot the industry has been in from just a profitability perspective that I can remember. I mean, is that am

I overstating it? No, not at all. And I think that's the thing is everybody goes, oh, you know, are they going to have the discipline? And you say, well, you know, it's where you want it to be. So it's it's not an accident that the industry is here. I think, to their credit, manufacturers and even retailers have moved their businesses to a point where it's it's more efficient, right, fewer years now, you don't have to worry about tacking on those extra two and a half three million units

by throwing money at the problem. Right, So hey, if I only need to get my market share of a fifteen million unit market, that's a lot easier than trying to get that same market share and create a seventeen million unit market. And it's you know, it's it's better for the income statement, it's better for your retail network. So it's a much organically healthy environment. But I think people look at things from the consumer's perspective and say, you know, where do those two and a half million

units go? The market is rolling over, it's you know, it's it's it's devastated. It's and it's really not. It's because the revenue pool is actually larger. How come it seems like maybe this is a sector that should be rerated from an investment perspective, stock perspective, a multiple perspective. Are you surprised we haven't seen these stocks move higher because it sounds like a lot better business than it

ever has been. Yeah, I think I think the way it's looked at is that, right, you're either a growth industry or you're a value play. And you know, I think the problem is that when you go, well, how do you explain being a growth industry going from fifteen million years? You know, from seventeen to fifteen, Right, that's the opposite of growth. But you know, people aren't really looking at what that means for you know, the revenue

and profit contribution from fewer units. So, and I think what we're on the verge of is, look this, this industry couldn't grow total volume, so it became about mix shift to truck from cary. Now you have a lot of automakers that can't shift anymore truck for it is like ninety eight percent already and most are already there. So what you're getting now is that the next growth opportunity comes from the mixed shift to electrification. Problem is

it's not profitable yet. And ultimately thirty seconds left, Kevin, Ultimately, what do you think the profit margins on an EV vehicle will be versus an ice? Well, you know, the idea is that simple manufacturing, simpler manufacturing process, which I'm

not sure. I think if we look at the way Tesla does things, there's a lot of copy and paste, and you know, the models look the same, and you know, I'm not sure that a full line portfolio is as efficient in terms of production, but fewer moving parts, and you know, the whole idea of it. Look, it's a skateboard of batteries and then you're just going to flap a different body on it. You know it can get there, but you know you're talking about a whole different menu

of materials too. Yep, all right, Kevin. Always a pleasure to speak with you, particularly when Matt's not here, because I could get a question two in their Usually Matt just goes all over the auto story. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple podcasts, or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three. And I'm fall Sweeney. I'm on Twitter at

pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio