Markets, Oil, And Retail (Podcast)

You know we're setting in some kind of support here, Dan Jenter, he's a CEO, ce IO and chairman, so I guess he kind of runs the whole place. R and C Genter Capital Management. Uh, Dan, thanks so much for joining us here. When you see it, you know, a couple of past days like we've seen, you know where you actually has some green on the screen in the midst of double digit declines in the ESMP and NASDAC.

How are you looking at this equity market here? Well, look, I think what we're saying is a market that's generally trying to find its bottom. Frankly, Uh, you know, even though we can make a you can make a good, good case that if you're really wanted to have a capitulation. Certainly we could go off another five, maybe ten percent, but I don't see it at this point. I think we'll hold probably a down five if we don't hold somewhere.

And this as a basing battern, and I think it's a pretty normal transition, frankly, of which you typically see when you know they when the FED and other indicators keep telling you what's going to happen. It's always amazing to me that people are still surprised when it does, but then when they finally digest it and realize that

multiples are going to have to adjust. You if you're in a situation where you have rising inflation, you have rising interest rates, it's gonna have pushed down GDP, it's gonna push down earnings, and multiples need to adjust. It's pretty well stock valuation one oh one. And and now we've seen that adjustment. I mean, we're at much fairer p s right now based on this economic condition. I think we're in a basing pattern where people should be

buying into this um. I like buying into the big days of weakness, especially when there's weakness for no reason you I find that to be an effective deployment of assets, and so I think people should you know, they may not want to jump ahead first, but putting some toes in the water here is a good thing to do. Looking at the next certainly two to three years of not frankly the next year, I guess the concern is valuations,

or the concern was valuations. Are you um are you happy that we've gotten down to um a level that is more consistent with history of still pretty strong on the s and P five hundred frankly pe of twenty and change, and especially looking at a FED that's going to raise what another hundred hundred fifty basis points. Well, look, I think that you're right from the standpoint that I truly do believe in the old adage that you can't

fight the FED. I mean you, we have definitely transitioned from where we had a tailwind to a cross wind. So you're look, maybe it's not a direct hurricane force head wind, but you're definitely fighting you know, a strong cross when if you will, that is making people DVD

off course and it's harder to stay on course. But the but I think the valuations now are are at points that you can get you can get back into the game, if not as a short term trader, but if you're indeed looking at I normally say two to three years, I like to look at the three year time rising now I think it's much stronger, and even looking at one year, because if you look at where the valuations are, I agree, from an SMP standpoint, you could say at twenty, you know, based upon you know

somewhere at two thirty on the SMP and two fifty next year in the SMP, you know you're above the fifteen five long term average. But but bear in mind interest rates were still a lot higher when you're looking at that long term average over the last fifteen twenty years. And when you look at where we are, I mean, look at the Russell one thousand value is right now down to a right and it's down from sixteen too,

that's normally about fifteen five. Even the Russell growth, which was stratospheric, is at seven and that's down from from thirty point six, and it's averages one. So value stocks are still undervalued, road stocks are now fairly valued, and you know, I don't think you're gonna time the last five of this. He then many of our listeners that they look at their portfolio, probably a big, big chunk of it is made up of some of those big

cap technology names. And if I think look at Amazon down thirty year to date, Microsoft Apple fifteen down year to date, do I get back into those names? Do I add to my positions there? How do you think about some of those you know, big big cap tech names have been so good for so long, Well, for those names, I would have a standard position, and so that that to me is somewhere two and a half

or three percent position. You're even though they pulled back dramatically, you're still dealing at at very high peas And the fact of the matter is you're just looking at slower growth and and those dynamics you just can't overcome. I mean, if the if the economy is going to grow slower, if GDP is going to be slower, and financing costs and capitalization rates are higher, then earnings come down. You know,

it's very straightforward. And if you're in that situation, I mean, you can't can you cannot support a PEG ratio in pe ratios that are at those stratospheric levels. Now, I would not abandon those because I believe that Frankly, there's just so much popularity, there's so much momentum. People aren't going to abandon those names, and they'll probably always sell at a premium pe. But I don't want to be

over I don't. It's not a bargain basement. You know, there's not a garage sale going on here, so I wouldn't be overweighting the position. But but having you know, somewhere at three percent average position, I think, is that's where we are with those names. Just quickly, you've been around r n C genders. What's the origin story? If

you can wrap it up for us in thirty seconds? Sure, I mean, we we really started in you know, really back before the Pension Reform Act and before investment advisors really were popular, just really in a frankly a pretty fundamental position that we felt it was better to provide

investment advice for fees versus commissions. And so we started on a pretty simple premise that you know, we felt if we were charging fees based on assets, which is now popular, that everybody benefited as the portfolios went up, versus charging transaction fees. And we were kind of one of the first to do that, certainly first in l A.

And it's worked out well for us. Yeah, at the avant garde, because that's then swept across the industry back when I started working on the street in the nineties. All right, Dan, great stuff, Dan Genter, CEO of RNC Genter Capital Management. When I look at oil, I guess I've got kind of a fixed supply. I've got a reopening global economy, So I guess that means demand is going up, and like any commodity, that should push price

of oil higher. That being said, I'm still surprised, maybe shocked to see w A crew did a hundred and fifteen dollars an ounce. So let's bring in an expert maybe explain it to us a little bit better than my simple analysis. Fernando Valley, senior analysts for Bloomberg Intelligence. Fernando again, w t AC crudit hundred fifteen dollars. I'm shocked,

slash surprised. Should I be? Well, if you if you wondered if there was any risk from the Chinese lockdowns priced into under a two hundred dollar oil, Uh, you've

now found out that there was significant pressure. So as we as soon as we hear there is an easing of lockdowns in Shanghai, both Brent and that we take off and uh, you know, we talked about how Russian supply was going to fall because of sanctions, and we're starting to see that even though Europe and Asia are still purchasing Russian energy, just the lack of of capital and equipment and services from the Western providers has already

led to a drop off. We also talked about how production in the US is we want to struggle to catch up because we don't have the people, we don't have the equipment, We don't even have to say to really get to the levels of the that we would need to balance the current demand. Well, and it seems like the industry just isn't willing to get um to put as much capex as would be necessary in to ramp up production, only to have their legs cut off

as soon as this thing gets the equilibrium again. Exactly, it's it's difficult to make a five to seven year decision on on building new facilities and making the necessary growth in your company if you don't think that that scenario is going to continue for for such a long period of time. And you have to remember shale didn't really make a lot of free cash flow for the past fifteen years. This is the first they're they're expected to make as much free cash flow in two as

they've done for the past fifteen years combined out. Uh. And so when you put that into perspective, they're really paying back their initial investments and what brought us to being close to being energy independent, although we're not technically energy and dependent as of today. So, Fernando, how about OPEQUE plus UM talked to us about production? If OPEC plus say, hey, we wanted to increase production by ten or does it have the capability to do that? Uh?

It does, and but they don't really have the will. And the question is for how long can they increase productions for that by that amount? H Saudi Aramco has talked about increasing production to twelve to thirteen million barrels a day by six. It does take time, especially to grow at that magnitude. They're currently producing closest nine million barrels a day of crude oil UM. They could probably go as high as ten to ten and a half. Uh. And they are the largest one on that growth. And

then the other ones have political issues. UH. Your Irax, your Irans that they could raise production significantly on an absolute level, but they have have their own issues guaranteeing

the security or sanctions the kids to be wrong. You know, we've heard a number of people Paul, you and Tom were talking yesterday, I think to Bill Smead Yep down in Phoenix, and he was saying he loves oil producers right now because they're priced at seventy dollars a barrel, and obviously we're trading far up above that, at least in t I terms, I think one fifteen right now. I also saw Marco Kolanovitch JP Morgan, who was voted the number one Equity Links strategist in II last years.

That's a good bump for his bonus, right. He recommended using recent weakness and oil and energy aims to add exposure there as well. Are you starting to see that as a consensus, Fernando, Yeah, it seems like, well, the there's a return to oil, and especially against some of the earlier bell weathers in the sector tech and retail, especially as that sectors that weaken, Oil has come back into preference. And when you can are the free cash that they are generating, and that most of those uh

that free cash was being reverted to shareholders. It is a compelling UH distribution yield that dwarfs what the SMP is currently offering. So where do you think oil gets too and over what time frame? Or do we still have more to move higher with the crewed I think in the current conjecture, yes, it remains a question of what the U S does with rates and how demand reacts.

I think ultimately we are major concern is that higher a combination of higher rates and inflation will have a significant impact on emerging market demand and we're starting to see some of those cracks in the horizon. That's probably still in the second half of the year UH, but we think there's room to run through the summer, especially as the northern hemisphere gets into its high demand season, and that could be north of one UH for for the w T. I what happens if China UH let's

up on the lockdowns. We're seeing I think fewer infections intra community and there's a lot of talk anyway about the fact that the party needs to to let up a little bit. Is that gonna spur the demand side big time? Yes? Again, if we all return to the to the to the our usual situations. Yes, the big question there is supply chains because regardless of UH returning to to normal tomorrow, we still had a massive destruction and a lot of ships that are parked outside of

ports in China. UH, and that will lead to that cost inflation that we talked about. So again, in the short term, yes, we think that that that could be. That could mean higher demand as China reopens and experiences something similar slightly less aggressive as we saw in the US in Europe and we reopened UM. But our biggest concern is that the real push from inflation will come in the second half, and especially from emerging markets that

are already on the brink. I mean, you can see the situations in Sri Lanka, in Brazil, UH, in Mexico the fiscal situations are worse, and UH the protests are are increasing over the concerns over food and fuel. So I see, just you know, I guess it shouldn't surprise that Saudi a Ramco is said to weigh an I p O of its trading unit amid oil Boom. This seems like a big deal, could be a big I pill,

like thirty billion dollars. What do you make of that just a good opportunities to play there Fern end of Yeah, yeah, I agree, but I think it's a it's an opportunity to play. Clearly, sorry, doesn't need the capital right now, but they are trying to increase, uh, the diversification of their economy, and they're trying to get more capital into the kingdom. Uh. You know, the only concerned with trading having a separate trading arm from your integrated oil company

is that they ultimately play hand in hand. You're trying to sell your cargoes and sometimes maximize the overall profit by putting that profit in the integrated signs and sometimes at the trading. So they'll have to make it very clear as to how they'll uh what kind of Chinese wall there will be between the two the two entities in order to make this a viable offering to third party investors. All right, interesting stuff again. W T a

cood Oil pushing one fifteen a barrel go figure. Fernando Valley, senior analyst for Bloomberg Intelligence covering all things uh energy. All right, let's dig into these Walmart numbers. Stocks down nine percent here. Inflation a big issue for the costs there are in Sunda Rama. He's a senior equity research analysts at cf are A. Joins us Auran. Thanks so much for taking a time here. What's your takeaway from these Walmart numbers? Yeah, yeah, thanks for having me. Yeah,

it was it was a rare miss by Walmart. You know, historically they've done Walmart has done a great job managing expectations, so rarely do they miss on earnings. So when they do miss like this, especially about this kind of magnets, you know, you tend to see a pretty big hit

to the to the stock price. But you know, the big takeaway that from from from Learning's called today with what I took away is that, you know a lot of the issues that they pointed to was really on the bottom line, and a lot of that can be isolated to the specific quarter, and maybe some of that

will flow into Q two. So you know, and argue, you know, don't expect Walmart to continue missing like this because like I said, they rarely do miss on the bottom line, and and you know, historically during periods of tough economic times, challenging times, Walmart his historically outperformed competition. So you know that for for those reasons, we kept our by rating today. We did drop our pull montagrat price to one six two from but we kept our

bierrating on the stuff on the shares. The thing is, if I look at you know, if I compare to what happened at Home depot Um, which you know, the beat was all driven by higher prices, they actually had lower unit sales. It looks tough for Walmart since they can't raise prices like that, or at least that's the narrative. I don't know if it's true, but that's this is what I hear. They can't raise prices until they absolutely

have have to. Um. Is that actually the case? Yes, So the their average ticket prices in the US was only up three percent. And you know, if you if you assume that their costs cost instlation is probably of double digits for them. So they only increased prices by

three percent. So there was a mismatch there. But they know that mismatch on on the call today, and a lot of that was due to fuel costs, because the fuel really started the surge at the end of February, and it was really tough for really a lot of these retailers to manage that that those costs, and I think now they're doing a little bit better job kind

of matching pricing and costs. We do expect more pricing to flow into Walmart's income statements over the next few quarters, because because outside the fuel the fuel aspect for you know, things like food and other consumables and even general merchandise items, Walmart is they're noting that they are passing those costs

through at least the cost increase. They're not offsetting the margin impact, but the costs are being passed over to the to the consumer, and it seems are in that well, if I'm Walmart, if I can't pass costs increases through, who can Because I mean, where are my customers generally gonna go? I'm so big and have you know, just so many items? Yeah, I mean, And I think that kind of goes to show the state of the overall

consumer right now. You know, Walmart is probably over index to the to the lower income consumer, and I think we're starting to see some cracks among the lower income consumer. You know. Walmart noted that some some consumers are trading down some branded products to private label because that tends to be a little bit cheaper. They haven't really seen that among the middle income consumer the upper income consumer.

But you know, the longer inflation stays at this elevated level. Uh, you know, it's it's it's it's most most likely we're going to see as more consumers changed their shopping habits trade down from branded to private label shop and more value aren't oriented stores like a Walmart or or a Costco or somewhere somewhere like that. Um, what do you if you if you look across the retail spectrum, are there companies that you think are going to be winners

and losers here? I mean, are there some that you feel really strongly about? Yeah, I mean certainly all the We really like the big box diversified retailers, So that includes Walmart, Costco, Target as well. You know, not only do we like them because they're a large big box diversified retailer you know that also prides themselves on value, but they also have these alternative business dreams that are

starting to pop up into their business. And it's things like advertising, things like uh, first party and third party marketplaces, fulfillment services, healthcare, financial services, all these things we're kind of non existing for a lot of these companies. Five ten years ago, and these are very uh passet light, high margin businesses, and as these business continue to grow, I think these retailers can continue to invest in the core retail bus in an area like wages and so forth,

and continue to grow the bottom line. All right, good stuff are in sunder. I'm senior equity research analyst at cfre A breaking down the Walmart numbers. We had some retail sales numbers come out this morning. Pretty darn solid for the consumer there. Let's break it down, Angie Solanki, National director of Retail Services for the United States for Colliers. Angie again, you know, we kind of had the retail sales numbers. They look pretty good to me. What is

your takeaway? I completely agree with you. Um, there's a lot of resiliency that we're seeing, and so as you stated, sales are up, we saw an increase by seven percent year over year, so that's incredible. I think what we're really seeing right now is people are coming back to work and there's been a nice healthy increase in the apparel side, UM, where people are saying, hey, it's time to kind of get back into some new clothes and head on back into the office. Here. Even though it's

a shorter week, people still want to look good. Do we not have to be concerned about savings rates? They've dropped back below pre pandemic levels right now we're looking at six point two percent and um. Goldman Sachs, chief economist on hopsis today said that consumers are reaching for leverage again. Um. Are we getting to that kind of good old American place where we spend more than we make?

We are? Um? I think there's still a balance between that because I think people are still you know, looking at inflation, what's going on from more macroeconomics. But nonetheless, you know, they've been saving for quite a while now, and so a little spend, not percent, but even just more and spend from their perspective is not a bad thing.

I think we need to really look at how we're taking the spend and where we're seeing some of those increases that we look at, For example, the increase in just spending restaurants, it's a nice healthy growth of two. So andre we kind of had a mixed bag in terms of the retail earnings today. Home Depot pretty good to be able to pass along price increases, Walmart not so much, and the stocks down about So as you look at those two big, big retailers, how did you

think about that at vs. To be the consumer? You know, I think it's just um, if you really take a look at the consumer and their spends between Home Depot and Walmart, Walmart definitely did see a little bit of a softening. I just I think, in my opinion, what we're seeing here is just a slight shift. I think we're going to see that come back, you know, to spend. You know, the shock of gas prices going up, you know several weeks ago to uh, you know, the lack

of certain products. A lot of that takes into account how we're spending or how consumers are spending. I think it's just a a you know, a softening, but not a trend that we're going to continue to see with Walmart. What do you think which which retailers are going to do the best with American consumers this year? I mean, Walmart, call us Co, target, those those retailers that offer consumers discounts, Are they going to be the strongest most? Definitely, grocery

is going to still be strong. Our mass merchandisers, the names you just mentioned are going to be continue to be strong. The dollar General and family Dollar brands are going to continue to be quite strong as well. So although we're seeing this um movement towards going back to mass merchandising, buying in bulk, et cetera, that's where you'll see the winners, but we're also continuing to see you know,

retail overall still gained momentum. I think this was a really uh, you know, something important to for us to take a look at. You know, NRF just mentioned that US retailers announced nearly seven times as many store openings as closing first quarter of this year. Interesting. So you know, how about the grocery business there, Boy, when you talk about inflation, a lot of the stories we see and here are just extraordinary increases in food prices. How do

the grocers kind of deal with that? You know, if you if we think about the grocery segment, their margins are you know, quite tight in terms of pre pandemic. I mean this is going back in my career almost twenty five years ago. That was the talk about, you know, how tight margins are in that sector. And so it's really about volume, loyalty, consumer loyalty, etcetera. I think that's just compounded where we are today mostly due to cost in you know, the supply chain, in labor, cost um

and just doing business in general. So you know, in order for grocers to continue to be UM successful and albeit I'm not speaking of costco uh and in the larger brands um in the math margins because they've seen increases year over year around twelve UM. You know, these grocers are still you know, looking out. Okay, how do we differentiate, how do we get in front of the consumer on a consistent basis, And that's why you're seeing

more and more you know, online shopping. UM, you know, demand delivery, shortening that demand window from instead of same day too in the next two hours. So we'll continue to see that to just grab that loyalty share from some of these consumers. All right, Angie, thank you so much for that overview. We have a lot of retail sales dated, a lot of consumer a lot of retail

numbers coming out of Walmart and home depot. Going to part it all out and break it down, Angie Shalanki, National director of Retail Services for the United States for Colliers. That's a NASTAC traded UH company c I g I is the ticker here. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple podcast Asks, or whatever podcast platform you prefer. I'm

Matt Miller. I'm on Twitter at Matt Miller y three and on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio