P&L: Be Skeptical of Eco Sentiment Data Before U.S. Election

And well, okay, you can. It's always great to have you, Elena. You know you're you're a little self deprecating yours. Yes, so let's talk about what it sounds like. You're not leaving, are you alright? Because all right, tell me what happened. GDP two point nine print estimate was for two point five big deal. Oh, these numbers are very encouraging in a sense that they do a highlight that growth has

rebounded in the second half of the year. So in that respect, it's it's very positive, but as always, you need to look at the details, and the details to

us seem to be a little bit less encouraging. Although, um, you know, the bottom line from the report, let me just say that is that will provide comfort for the FIT to raise rates in December, but the underlying details might not necessarily mean that they will continue at a very rapid pace in the next year, So they might have to continue only on a gradual pace next year. The channet yell and send you an email. I mean

that sounds earlier this year, right, we were talking about December. Correct, Well, let's let's take into some of those details that are giving people comfort that the federal move for not too quickly. What are you looking at? So the details of the reports showed considerable deceleration in consumer spending, which could be discouraging, could be encouraging. So it is discouraging because this is the biggest part of the economy and that is slowing

down considerably. On the other hand, that means less dependence on consumer spending alone and some acceleration in other sectors of the economy. So diversification is always good, right. So but uh, you know, if you look at the details, for example, you see that the inventories at its sixty one basis points to growth in the third quarter, and the net exports at it eighties three basis points, so together they account for half of that growth rate that

we saw in the third quarter. But it's not good. Don't we want to be exporting more? And don't we want to These numbers could be very volatile, and uh, you really need to see several quarters of growth to UM actually to see this is a sustainable kind of growth in these sectors. Exports net exports could be distorted by the engine UM shipping company bankruptcy, so that could be something going on there and it might not be sustainable.

Inventories is another wild card. We were talking about considerable pickup in stockpiles and uh, you know this seems to be UM not happening that inventories are going to contribute uh quite a lot going forward, so to me it seems unsustainable. So but overall for the year as a whole, h GDP needs to grow only by one point nine percent in the fourth quarter to reach the fat target of one eight percent for for the years a whole,

So that seems to be attainable. Helena. We got new home sales this week, we got durable goods orders, jobless claims, now, we got the g DP print is this up or down week for the for the land of the economy. So let me think it's always a always a mix. We can say that everything's going along, everything is going on chug chugging along just fine. And next week we're going to get the payrolls report correct on Friday. Yes,

a big deal, not a big deal. But we care as long as the paces within the kind of the same kind of range, it doesn't need to accelerate from here, that's going to be fine. You know one fifty is still fine. And you think that the market has already baked in twenty five basis points that bonds, for example, I was surprised. I was talking with Lisa earlier today when we got the two point nine g d P report. I was surprised that the bond market did not sell off.

We were talking about the same thing on the desk actually earlier this morning. Um, well, as long as the probability on the weird right uh days above. Yes, but I do think, I mean, we got the University of Michigan survey of consumer confidence in this inflation expectation again we're back at that new low. Yes, but I tend to be very skeptical of the survey data ahead of the election. Okay, so any survey data ahead of the election, you might want to wait until sentiment could be very

much distorted. Listen to the rhetoric that we're hearing Pale exactly. So it's it's really like it happened before, Like the Michigan survey was distorted during the dead ceiling crisis back in two thousand and eleven, and so what nothing happened to consumer spending, So you have to be very careful

with sentiment numbers, both consumer and company sentiment. Elena Shugliatieva, thank you so much for being with a senior US economist for Bloomberg Intelligence breaking down at the GDP report and why the bond market just doesn't seem to be responding right now A tenure U S Treasury is pretty much flat at one point eight five percent. This all right, let's solve the quandary of oil and the price of oil.

Joining us is our expert, yes, Vincent Piazza. He is the senior US oil and Gas analyst four Bloomberg Intelligence. Always a pleasure to see you. Thank you. I was looking at X on today stock is down more than one percent. I was looking at Chevron stock is up more than three percent. What's going on between these two companies. So, I think the broad narrative today is that output growth continues to be a challenge for both UM and today it seems output growth is more of a challenge for

x On relative to Chevron. With the broader takeaway, the broader narrative is output growth continues to be a challenge. The cap X decline with the spending decline that we've seen since the price decline from a couple of years ago, is impacting the ability for resource capture. So lower output, Yes, spending is down, but the the ability to book the resource UH is challenging as well. The tailwind that refining was during the price decline has now become a headwind.

So the outsized gains, the over earning from the refining business, the downstream business, the chemical business now becomes more of a tail wind for both entities. Now, Exxon did say that because of these lower prices UH, it may have to take a look at impairing some of these reserves in North America to the tune of roughly eighteen or t UM and that is a headwind for them. For Chevron,

UM sentiment coming into the quarter was somewhat murky. Uh. They came out with a modest uh level of output UM year over year, and they did provide guidance for December output. So for four Q output slightly higher relative to three Q UH so UM modestly more positive for Chevron, less less so for Exxon. But remember what these businesses are, right, they are integrated networks. Uh So they are more defensive. They are lower beta equities because of this, less volatile

earnings and cash flow stream. So during a price recovery, you want leverage to the upstream, the more direct exposure to the price recovery, and not these integrated platforms where they're downstream the chemicals and refining business tends to offset any benefit from a higher price in the upstream piece.

So I want to go back to Chevron. I mean, they've posted their first profit in a year and seem to be more upbeat, and their shares are up almost first is fourteen percent less than that thirteen percent gain year to date for Exxon. What's Chevron doing to gain

investors confidence more than at least Exon. Well, I think it's it's relative sentiment as well, right, So coming into the year better sentiment for Exxon relative to Chevron, and Chevron is outperforming that lower sentiment, right, so under promise over deliver in a sense. And for Chevron this quarter you had some issues with uh some downtime and Nigeria unrest,

so that hurt volume as well. UM. For Exxon, the one uh, the one item this quarter that probably has longer near term effects is this issue of the reserve bookings, any potential impairments um come the close of the year. Okay, So taking a bigger step back, X and Chevron, they both delivered their earnings. Uh. Do they give a better sense of what they expect as far as oil prices in the year ahead. Well, I think everyone else. Uh,

they are perplexed. It's it's a challenging environment out there. Uh. The the potential OPEC cuts UM also may impact them because they are partners as well, and how much of that cut they would have to take on is uncertain. Uh. Exxon said that on their call today. So, UM, there is as much uncertainty UM that they see as the the the upstream player here in the US. UM. And so we are in the midst of a younger recovery UM, there are still challenges ahead. UM. We're probably oversupplied by

roughly a million barrels. UM. We need to see that sustainable demand growth to sort of truncate those imbalances, but that remains to be seen. OPEC. We need to get some clarity as to what type of agreement there really is.

If there is an agreement, UM, and that will give us some additional clarity, but that remains a very big unknown and that will be the driver, uh for that will forge any type of price recovery from from the From this point, Vincent Piazza, you are not only just an expert in terms of the macro oil stuff, but in terms of balance sheet and understanding how companies work.

Can we just talk for about about a moment of free cash flow from these because these are dividend pairs right, exactly exactly, And you know we've been through this with BP, with that terrible thing in the Gulf of Mexico, the a condo. Well, I mean, when you monkey with the what you changed rather the dividend, right, that's going to change your investor base, right, And that's a very good point. We're talking about shareholder engagement, So shareholder engaged engagement is

through the dividend and is also through shrry purchases. Okay, and you fund those sherry purchases and that dividend through your free cash flow, and it sometimes you borrow forward as well. Now, the dividend yield for Chevron and Exxon is three and four percent. The average dividend yield for an SMP company is around somewhere around two percent. You're owning it for that capital repatriation um and for EXCEN they'll throw off somewhere around four or five billion or

free cash flow this year um. Chevron will still be in a negative cash flow, so they're still they are borrowing to pay that dividend UM. But in general that remains the key that shareholder engagement because these are lower beta, less volatile investments relative to the capital appreciation you would see from an upstream player. So real quick, I want to go back to the idea that XN may have to write its reserves off by why haven't they done so yet? Well, you do that throughout the you do

that from year to year. Once you once you have a full twelve year period and you're able to take the average of those individual twelve months to make that final cut off for the for the for for that fiscal year period. So in other words, there could be a lot of realized losses across the industry. Well, we've seen this last year as well for the upstream players. UM, So this is not a new phenomenon. I think it's

the size that has some UM concerned. UM and it probably has led to some of the under underperformance relative

to Chevron today. Thank you so much. Got it? Vincive Piazza, senior US oil and Gas analyst for Bloomberg Intelligence, breaking down the tail of two oil companies of Exxon which is losing value of versus Chevron, which is gaining an oil certainly being one of the driving factors pim behind expectations of inflation going forward, oil sort of hovering around forty nine dollars a barrel, still in that fifty two dollar barrel range. I don't know what it will take

for us to break out of this. Perhaps Vincent Piazza knows in his his seat, uh, And Lisa bramwoits, I'm here with pim Fox. This is Bloomberg. I would like to learn more about what to do with money, particularly seventy two billion dollars which is how much will Being can Trust overseas. And Tony Roth, chi's chief chief investment officer at Willman can Trust, is responsible with coming up with a strategy. So Tony, I want to start with cash. We're hearing a lot about people who are hoarding larger

stockpiles of cash to capitalize on the market. What it turns is that what you're doing now, we we think that the market is already turning. Lisa, by the way, thanks for having me today to you, and Tim Um it's great to speak with you. We think the market is actually already in the process of turning, and we think that that cash is better put to work today

unless it's earmark for very short term purposes. We can see that, UM, when we look at the global economy, looking at oil stability, inflation, stronger dollar change, in the commodity supercycle. UM, there's a lot of opportunity in the market right now. We're preconstructive, so we'd rather see that cash put to work. Where are you putting it to

work right now? Well, we like emerging markets, UM. So I mentioned the commodity supercycle, and if you look at UM measures like the CRB raw industrials and decks, for example, which moves very closely with the emerging markets UM. It's been moving upwards UM since about February, and we think the merging markets are going to continue to see UM an upward trend. UM credit and equity. Credit and equity are just uh, how how exactly you're going about that? Yeah, yeah,

credit and equity. So UM China for example, has been a real underperformer. And when you think about the two draw downs that we had in the market over the last fifteen months, UM August and then uh January February this year, right, really triggered by China. And we think that China has really gotten ahead of its problems in terms of the credit bubble and in terms of its

management of its currency. So there's a good opportunity I think in the Chinese equity market right now, UM and more broadly UM Partuity believe with respect of the consumed commodity consumers which haven't had as big a rally as the commodity producers like Russia and Brazil, etcetera. Tony, I'm wondering if you feel that it's a small contradiction that Chinese companies are venturing outside of China to acquire assets. They seem to want to buy almost everything that is

not nailed down. And particularly you had the purchase I believe of insurance the Waldorf Historic Hotel group, and then most recently you've had you know, Chinese investment in the United States in a variety of industries, had the Genworth Financial deal this week. Absolutely listen to. China has a lot of capital, So why would that be wanting to go out of the country if it's such a good deal to have it in the country. Well, one of the things to remembers that the Chinese currency is clearly

on a trajectory of appreciation. So if you're a Chinese company, right, and you can't a choir skills and capabilities UM that you can mirror inside China by buying foreign companies UM, and you can head your currency exposure and diversify your revenue streams. That can make a lot of sense from the perspective of the US based investor that's looking for appreciation. Certainly, UM to the extent we have the ability to hedge currency exposure in China, UM, it's probably how we would

invest in today's market. Going back to the idea of energy prices, and where they are currently. KKR Credit Co had nat Zeka spoke with Bloomberg's Eric Shasker yesterday and basically said that KKR is selling a lot of its distressed debt holdings and a lot of its energy related holding salk in gains so far. Why are they wrong? Well, if we look at what's happening, the US is now the spling energy producer in the world, right, So number one, we see a trajectory where we're still um dropping in

terms of US production. So production is down about eleven and a half percent from the peak, and while we've seen a little bit of a rebound and recounts, we're still massively down around se down from the peak and

there's a big lag effect. So when we see that the fact that US as a swing producer is still dropping from a production standpoint, And on top of that, we look at the fact that ARAMCO write the big spotty UM state Energy Enterprise oil enterprise is gonna have an I p O sometime in the next twelve to eighteen months, and maybe a very strong incentive keeping the oil price upward as well. UM those are all fairly

strong UM supports for the oil price. On top of that, look at the g d P number today, right two point nine percent. So we see not just in the emerging markets, but even in the US, we see strengthening global global activity, which is going to be further aided and embedded by what I call step back from monetary insanity. Right, so, we've had, you know, a broad practice of monetary insanity

across the globe. I think that UM, central banks are gonna start to step back from that in the next twelve months, much more quickly than we've anticipated, and that's going to help stabilize the environment as well. Is that going to be bullish for commodity stocks? And if so, do you want to buy commodity stocks that do business around the world like Freeport mcmuran, or do you want to focus on domestic players. I do think that UM, it's going to be helpful for commodities. I do think

that we've turned the cycle on commodities. UM it's going to be a slow process. UM We're not going to see an aggressive growth trajectory for commodities. But I do think that materials, for example, in the US, has really not done well recently, and I think that there's a mean reversion opportunity for commodities, domestic commodity stocks UM, So I think that either way to play, it is actually going to be UM, whether it be domestic companies or

UH emerging market companies, etcetera, foreign producers. I think they're both going to do fairly well over the next two to three years. And again, it only can trust for long term investors. So I'm not looking to trade, if you will, on the most recent data point, but we're looking for the the trend, and we do see this trend in the commodity space. So Tony switching asset classes taking a look at bonds. If you think that stocks are going to do well broadly, is your sense that

developed market government bonds are going to do badly? And if so, how badly? We think they'll do badly on a relative basis. So if you think about where to look for income, right, we think the dividend in today's environment, right, which is right, bonds are still have significantly negative real yields and so while we're not that concerned about the credit side of the bond market, we are very concerned about the rate side, and so we would prefer pick

up income UM and MLPs dividends UM. To some degree, the municipal bond market will always stay a little bit underweight there UM today UM relative to our strategic acid allocation. But UM we would stay away from UM. You know, any kind of duration over five years in today's environment. We don't expect to see a complete normalization of the rate environment in the next year or two. Right. We think that we're going to see clearly a hike now in December. I think that's pretty much consensus UM, but

also two hikes next year. UM. That'll leave us around UM once a fee or so on the policy rate UM, and it'll leave room for a little bit more rate rate hiking. But we're not going to end up at a police rate of three percent or so anytime soon. So we don't see a huge shift UM in the rate environment. UM. That's gonna crush bonds, but we don't think that they're particularly attractive with durations over five years. Tony Roth, thank you, Chief investment officer, Wilmington's Trust, managing

seventy two billion dollars. I'm pim Fox along with Lisa Abramowitz. This is Bloomberg. Well, it's not hard to imagine what happens when you're in a business that is competing on price and is also looking at record infant tory in some cases, I want to bring in Mike Jackson. He is the chief executive of Auto Nation. He joins us now. Mike Jackson, thanks very much for being with us, My pleasure.

Good morning. All right. So, you know, if if I had, if I had a way to console you, I would because you know, you've been through a little bit of a trial by fire here. The stock is down I believe about three and a half percent today, it's down so far this year. Uh, you're in a tough business and you're trying to find new ways to invigorate the automobile retail business. You're opening standalone used car outlets. Tell me what's going on with the business and how you're surviving. Well.

We understand that the new vehicle business is cyclical, uh, in one of three phases, growth, plateau, and decline. Years ago, we said we wanted to have a way to grow when this marketplace plateau. So we launched the Auto Nation brand from coast to coast. It's been very well accepted and trusted by consumers, and we launched the Auto Nation Express, our digital capability from which we get of our business today.

So now we're spanning dramatically into the pre owned and UH customer care business, building free center UH, freestanding service and sales centers UH within our markets, which will be under the brand Auto Nation, and in order to have a compelling value story and a good experience for our customers in those centers, UH, they will all be one price on the pre owned vehicles, and we will launch Auto Nation parts and accessories in these centers and also

offer those parts and accessories in our franchise business. So as I look at it now, we're the largest retailer of premium luxury vehicles in the US, with almost a hundred premium luxury franchises including Mercedes, Ben's, BMW, Porsche across America. We have a very large franchise volume business, and now we will have freestanding pre owned sales and service centers across our footprint. You know, we were talking to Bob Shanks yesterday UH CFO of Ford, and he was talking

about how the cycle is maturing. UM. From your perspective, you talk about plateau ng in the auto industry, what's the risk and how can you measure it? Of a potential significant downturn in auto values and in appetite for new for new vehicles. So once the industry enters the plateau phase, it can run many years. There. We've gone five six years in plateau, and if I look at the availability of credit and the cost of money and the price of gasoline, we are in an extended period

a plateau. But ultimately a declient will come, but that would take much higher rates or restriction of credit compared to what we have today. So but even in plateau, it's a challenge to us as a company to have the ambition to still grow. And hence we've built a brand and hence we've built this digital capability that we're now extending a new business field. So we have the

opportunity to continue to grow just quickly. Mike the as Lisa was saying, having to do with the fourth CFO, any area of the country that is a better or worse, any particular product that's better or worse, give you about fifteen seconds. Well, we can go right to what's the most difficult part of the country, and that would be the energy markets, whether it's Colorado or Texas or up into Oklahoma. While it's stabilized. It's stabilized at a lower level,

and um, those are the most difficult markets. The two coasts are doing fine. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.