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We had some economic data, of course today, Retail sales KIM in better than expected retail sales. The headline KIM at zero point one percent positive for the month of August. The expectation was negative zero point two percent, so better than expected. The prior period also revised up, So that kind of it's kind of a little bit different than what we hear from some of the retailers who kind of call out the weakness that they are seeing, particularly
from the lower end of their consumers. But let's let's break down some of these numbers. We can do that with Joe Blanchard, President of Enterprise Client Solutions at Advantage Solutions. So, Jill, what did you make of the retail sales data we got this morning?
So hello and thanks for having me back. It was a surprise, right, This could be indicative of many things, but the first thing that I'll point to is early holiday earlier holiday spending, and so retailers have been pulling holidays forward with good deals and it's kind of working. Sixty three percent of consumers that that they would buy products earlier if on sale. Holiday creep's always been a thing, but it's so exaggerated today that virtually every week of
the year there's some sort of holiday in store. We saw that this summer with Summer ween, if you've heard that term before. So the back to school holiday shared shelf space with ghosts and skeletons, and a lot of orange and black TikTokers were making Jacko lanterns from watermelons.
There were skeletons on pol floats. Starbucks brought the ever so popular Pumpkin spice latte out earlier than ever before, and home improvement stores jumped on the bad and wagon with halfway to Halloween in April in hopes of addressing their slugs sales as well as trying to deplete that inventory so they have less to discount come the first day of November. So that could also be you know, leaning in towards this increase spending.
Well, Jill love of pumpkins spice Lotte, that's a good that's a good call out there. I wanted to know.
So.
Of course, when we're looking at retail sales, earnings and just all the data that's coming in, it can really feel like a slew. We can't really get a read on the consumer here. Has this offered us any more clarity?
Offers more clarity? You know? Probably not, because again, consumers are really shifting the way that they spend. The predictions for this holiday seas that are to be softer than last year, or two percent versus three percent. We we we do see consumers continuing to buy, but trying to buy lower cost alternatives. We saw that with back to school, where the volume was flat but the dollars were down, indicating that they're buying. They're just finding cheaper ways to
buy things. And I think we're going to see that this holiday season too, especially with things like the deep discount Chinese shopping apps t MoU, Shine, TikTok. Two thirds of consumers have shot those apps, and that's a number that will likely see go up. And I bring those up at the examples to answer your question because it's blurry out there. Things happening in both.
Directions, Jill.
For this holiday season, here.
How promotional do you think retailers are going to have to be to drive their top line.
They're going to have to continue to be very promotional to drive their top line. Historically, pricing and promotions were used to boost near end sales, but now they're used to boost everyday sales. And it's really driven by how consumers are spending and potentially a permanent shift in how they spend. And so we see a lot of growth from discount retailers, private brand sales in general, and consumers
are definitely leaning in towards those strategies. In some household are doing even more things, you know, like using alternative pay pay plans like a buy now, pay later, getting a second job, sharing groceries, leaning on social media. The hashtag back to school Halls was a huge help to parents during back to school season.
I mean, I think when we're looking at this and the market has really been on edge with investors really worrying about the consumer and how it may hurt the economy and the labor market, I mean, does this really show that the consumer may be stronger than many people think?
Oh my, I'm so hesitant to lean into that. All predictions for the back half of this year as well as a holiday season. You know, aren't incredibly positive. Economists think that consumers will rein in their spending in the back even though we didn't see that with the results this morning, will rain in their spending in the back
half of this year due to depleted pandemic savings. Lower income households have record levels of credit card debt uncertainty, and those low income households, by the way, are proportionally affected with inflation. We saw that a few weeks ago when Dollar General said that the weekest three weeks of their quarter were the last weeks of each month, indicating that consumers are really struggling to stretch that budget. So for those reasons, I'm super hesitant to lean into overall
growth in the back half of this year. We still think it's going to be depressed.
What is skimpflation.
It's a great question. I'd say that this industry is not short of creativity, right, so we all know what shrinkflation is. We talked about upflation, which is that concept
of fining a new use for an existing product. Skipflation is the concept of producing a product or a service with a lesser equality or not equality lesser price ingredient, So for a food product, or for a piece of clothing that could be a cheaper ingredient, or material for a service that could be something like a hotel's day with no cleaning service.
Yeah, I've seen that more and more, but less and less. Night after the pandemic, pandemic was really prevalent.
Now it's less, so definitely.
I mean, we can't really look at any one data point, but as we're looking toward the Fed tomorrow, of course this will that's not necessarily play into this one, but we're looking toward the next job report. How is this just telling us about the strink of the economy more broadly.
Yeah, so there's a lot of discussion around the rate cuts and what that might ultimately do to spending. Historically, spending goes up about a half percent in the year following a rate cut, but also goes down to to four percent in a recession. Where we are, you know, soft but not quite a recession. You know, we could see a slight decline in twenty twenty five, but overall, it's going to take a while to revitalize the economy via the rate cuts.
Just real quick, Jill, how important is brand loyalty these days.
Oh my gosh, I can't tell you how many times they say this. The new loyalty is disloyalty. Which, the new loyalty is disloyalty. We are training consumers to be disloyal. We are training them that there is always a deal to be had out there, whether it's at a different outlet or whether it's waiting. So loyalty has definitely declined and retailers are trying to get that back. So, for example,
take retailers loyalty programs. It's a great way for retailers to pull that consumer into their store for that trip because it's the only place to get that price. But consumers beware. It often does have consumers buying things that they didn't need or more than they need. In fact, we just did a recent survey. We're eighty percent of consumers so that they're buying more product than they need because of a good deal.
Ye.
So it's a great strategy for retailers, but consumers aware.
Entry load is what it's called. Jill Blanchard, thanks so much for joining us. Jill Blanchard. She's president of Enterprise Client Solutions. The firm name is Advantage Solutions. Joining us via zoom from California.
Today, you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
All right, it is time to get right to it.
I'm going right to our guest, daniel De Martino, Booth CEO and chief strategist QI Research. You want to talk FED, this is the go to source. We're so glad to have her in our studio. She's based down on Dallas. She was a former FED person down there in the Dallas Fed, so she knows a thing or two about this Central bank. Here, Danielle, what do you think they should do tomorrow?
I think they should have I mean, since we're doing shows right and by the way, by the way, I do analog. So it's my birthday today, so I'm just.
I'm right there with you with them. Legal to drink now barely possibly. It's also lis In Saunders birthday.
It is also lis In Saunders.
We always are like that.
The first ones to wish each other had we go down Constitution Day. Anyways, I think that they should have
if we're doing shoulda kuda lowered in July? And I think that they know that, and I think that had they lowered in July, because they had a quote unquote real conversation about it, according to J. Powett, the podium that they would subsequently be lowering again twenty five basis points tomorrow, which is why I think fifty kind of makes sense because the level of interest rates fifty basis points lower than what it is right now is appropriate
given Bloomberg's bankruptcies came in at eight in the last week, and we've seen another one since then, the second highest this year. I mean, obviously the lag effect is taking
effect in the credit markets. It's much more difficult to find funding if you're a bad building or a bad business, so I think, And it's harder by a car, and it's harder to refinance your home, and it's a lot of things say that the level of interest rate is too high, and I think that that's what they should be focused on the level.
So you said that you think that they should have cut back in July. So what are your expectations for tomorrow? I mean, are you in the more ambitious camp, are you looking for fifty basis point cut or so?
I mean, I have Look, I've been around the Fed for a very long time, and to say, and Bloomberg does a great job of tracking the volatility in the uncertainty of the wagers on whether it's going to be twenty five or fifty, we haven't seen uncertainty this high since two thousand and seven, wow, in terms of the
WORP WRP GO. So it's so difficult to say. And Bank of America came out and drew the lines hard this morning and they're like, it should only be twenty five, And Michael Furley at JP Morgan Chase is like, it absolutely should be fifty. My buddy, George Goncalvez at MUFG, kudos to him. He's been saying fifty the whole time because he's looking at the level. So I think that they've done enough broadcasting and moved markets to a great enough extent to break the seventy five percent rule.
If need be.
But that's what it would come down to, It would be breaking the seventy five percent probability role.
So once the FED does begin tomorrow, what's the cadence after that, Like, when would they like to be done?
Where would I mean, how does that all work?
So I think it from my experience on the inside, you sort of know it's time to ease off on on easing, yep, when you start to see the lag effect from tightening dissipate. Okay, And those are things that are visible right because BC, why go you can track the level of bankruptcy, you can track the level of distress in the system. When that starts to ebb off, then obviously financing is opening up enough to provide adequate liquidity to the system, adequate liquidity to the credit markets.
And so that's kind of when you know yep.
And I think J Powell at AL, I think it's what's unique right now is we've got a FED that wants to stop with a two or three percent handle. They're like, you know, we can put three percentage points of cuts out there and still not have to worry about going back to the zero bound, which they know is a failed experiment and encouraged too much speculation.
And going off of that, I mean, markets are pricing north of one hundred basis plantes of cuts through the end of this year. If that holds, does that mean that the later meetings would all be fifty basis? How would that work exactly?
You know, I look, j Powell is the least political FED chair since Paul Volker wondered the buildings and gave the staff and you know, seminars on on why the tailor rode was broken just for fun and did not care what Wall Street thought. Jay Powell is very a political So if it needs to be fifty, it'll be fifty. Because he's when he says I'm data dependent, he's dated dependent.
If we see that, you know, there's enough gig workers out there that have been absorbed and ergo, they're finally starting to apply for unemployment because we're seeing a massive runoff from the million full time jobs we've lost in the last twelve months into the part time for economic reasons.
Pool.
I had an uber driver yesterday, first drive of his Uber life.
Wow.
But you get that a lot because people are like, Okay, the state's gonna get wherever I live, stay x y. Heck, if it's tennessee twelve whole weeks, that's their max for unemployment benefits. I can maybe get two hundred and ninety five from the state, or I can get at least five seven one thousand dollars five hundred and seven driving Uber,
delivering door dash, whatever it is. But at some point you're going to saturate that market in terms of I mean, it's a lot quicker to get an Uber today than it was nine months ago.
So just real quick, what's the labor number that gets you spooked, whether it's an unemployment rate or just what's the labor number that gets you spooked?
To maybe art you might already be there.
I don't know.
Well, I'm kind of are yeah, spoop. I really am. To see the rise in part time employment. To see the economic depopulation ratio already dive down into recessionary territory that's on par with that of the two thousand and seven two thousand and nine Great Recession. To see in University of Michigan bad news heard on unemployment go spiking. To see people's expectations for their income go down for six months in a row. That's a data series that
goes back to nineteen eighty. We've never seen six months in a row of people saying my income is going to decline in the coming twelve months. Why is that because they're going from full time to part time. They know that what they're we have three hundred and seventy nine thousand and fifty five year old plus rejoin the workforce in August. Hey, I'm going to go back to work to help my kid who doesn't have a full time job anymore. We've got to put food on the table for the grandkids.
And I just saw that Sam's Club they're raising the base rates starting wages in the US from fifteen to sixteen dollars. And I keep an eye on that because my last job will be as a greader at walmart Danielle Dee martinmo Booth CEO, Chief Strategist QI Research during US Live here in a Bloomerg interrector Broker studio, which is an absolutely perfect guest to have the day before the FED.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and broud Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Nor are you a TikToker?
I am. I'm excited for this segment.
All right, Well good, I mean, I'm not even going to ask John Tucker he's a TikToker. I know where that's going to stay.
Do you know what that is? What's that?
You go?
All right?
Apparently yesterday the hearing went poorly for TikTok and it's legal fight against a US law enforcing servers and app stores stop hosting the video sharing app in January. That's not bueno for them. Matt Sheltonham, he follows all of this stuff media litigation. He's down in Washington, d C. For Bloomberg Intelligence.
MAC.
You summarize what the case was before the court and what their ruling was. Are we gonna be able to still have TikTok come January?
Well?
I think if TikTok wasn't concerned about a potential ban before yesterday's hearing, it should be concerned after that hearing.
Yesterday it did not go.
Well for the company. What's an issue here is in April, Congress passed a law that said unless TikTok is divested to a company that doesn't have its parent in China, that companies in the US can no longer carry the app. In app stores. Companies can no longer host it in a way that the app can be distributed, updated, or maintained in the United States, all of as of January nineteenth, and TikTok is said, look, we can't do a divestiture.
It's certainly not on that timeline. And so TikTok's only chance to survive in the United States after January nineteenth is to win this legal case. And yesterday's hearing was the big, big hearing on the case, and the three judges on the case, in my view, were not very sympathetic to the company's First Amendment case.
And so is this isolated to the United States? Are there any other you know, countries that are also trying to crack down on TikTok and its influence.
I think different countries are taking different approaches. The EU has taken a harder approach to tech regulation generally and likely would apply that to TikTok without a specific ban in the same way. According to our analyst Hamlin Basin. There so this law is US specific. It was passed by Congress specifically to target the company, and so it's a different remedy here in the US. But there's a tendency I think to think, you know, nothing's going to
happen in Congress. Nothing ever gets done there, just a lot of talk. Well, here, Congress did it. It's done. It's law, and TikTok's only chance to overcome it is to win this legal case.
So the parent company for TikTok is Byte Dance, a Chinese controlled company. If I've misstated that, let me know what has Bite Dance said about their options, what they plan to do scenarios.
Yeah, so that's right, that Byte Dance is the parent company of TikTok. Now, TikTok is a is a US subsidiary, It's a US company. TikTok is a privately owned company, but it happens to have its headquarters in China, and that's the concern. And you know, TikTok and Byte Dance in this legal case have basically said, look, a divestiture is just not technically or legally feasible. And so there's really no indication that they're pursuing a divestiture at this point,
and at least that's their indication to the court. The law allows a ninety day extension if the president sees their making progress on a sale, but the company, they've made no indication they're pursuing that route. They say this is a blatant violation of the constitution, and so they think they can win in court. But I'm not so sure after yesterday's hearing.
I mean, so what do analysts think are the brought would be the broader readout for the corporate side of things. I mean, of course, we know so many companies actually promote their products and their companies on TikTok. I mean, when I'm scrolling through, I'm always seeing a new pitch. So what does that look like in terms of advertisement and the ripple effects there?
Yeah, that's right, And part of the litigation yesterday was brought by users of TikTok that say, look, there isn't a good substitute.
Yeah, there are other.
Social media companies, but we've built our businesses here. We are expressing ourselves as a first Amendment matter on TikTok, and the government can't take that away. And there's also
a big business impact in terms of TikTok's competitors. Is one of the leading social media apps in the country, so if it goes away, it's a great opportunity for the competitors for Google, for Meta and so there are serious business implications by forcing a divestiture that isn't going to happen in effectively forcing a ban.
Is this something that could get to the Supreme Court.
Yes, So if TikTok loses in the DC Circuit, I expect we'll see a decision by early December from the DC Circuit. As I said, the key deadline is January nineteenth here, so there's not a lot of time. If we see a decision in December from the DC Circuit, TikTok's realistic only chance at that point is going to be a last ditch plea to the Supreme Court to hit pause on this, to say, look, nothing should move this fast when you have such a major restriction under
the First Amendment. The Supreme Court should issue a stay and take up this case. That's going to be the TikTok's last chance to dodge a man by January nineteenth if this ruling goes against it, and I'm not sure the Supreme Court will necessarily take it. Yes, it's a major question that they might be interested in. But if TikTok gets a major loss at the d C Circuit. The Supreme Court could say, look, you know they got
it right. We don't need to step in here. So it's not even a sure thing that the Supreme.
Court will take it.
We'll have to watch that in after the d C Circuit rules.
All right, Matt, thanks so much for joining us. Expert expert analysis there tall you folks. It's hard to find that kind of analysis anywhere else but Bloomberg Intelligence. Mett shutting home media litigation analysts from Bloomberg intelp just down in Washington, DC.
It's a huge case. I mean, you think about.
Not just all the people that are on TikTok, but all the businesses that are built upon.
What happens to the dances.
Are we not going to dance anymore? Exact?
So you'll get like fifteen second videos of some guy chopping wood or somebody dancing.
I don't know something. We're afraid that we're going to lose. That it's going to be big. We'll stay on top of it. This is Bloomberg.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto. With the Bloomberg Business Act. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
It's not just us here at Bloomberg that are fixating on what the Fed's going to do tomorrow. Real people, smart people in Cleveland, Ohio, they also are going to focus on that. Anna Rothbund joints us here. She's a chief investment officer lyrical sopranis soprano, lyrical soprano Seebiz Investment Advisory Services. They're based in Cleveland, but she joins us
here in our Bloomberg Interactive Brokers studio. So on, when you take a look at your portfolio, kind of the advice you're giving your clients, what have you been telling them about the FED and what the Fed's doing and why it matters or does it matter that those types of discussions.
Oh it matters, Okay, you know it has plateaued for over a year now, and they're tomorrow twenty five or fifty. In some ways it doesn't matter because it's just the first step that they're taking in what we believe is a cycle of cuts. It's still going to be restrictive after twenty five basis points or fifty. We do think that there are other considerations they need to think about, which is, if you go back to the March projections and then look at the June projections, there was a
huge revision, right, they got more hawkish. Now it looks like the March revisions maybe they had they it would have been better if they had stayed put. So if we look at that, we have three cuts coming up, twenty five basis points each September tomorrow twenty five basis points that we're expecting, and then maybe November and another one in December. So that's what we've been sort of relaying to our clients and certainly preparing our portfolios.
And this has definitely been such an interesting cycle, unprecedented. But I mean, when you're looking at those projections for cuts throughout the end of the year, is that based on historical patterns or are you all you know, what's the thought process behind not moving forward?
I don't think history helps us, right, not at all.
No, it's you know, this was a pandemic driven inflation and the Fed had to do something pretty dramatic coming down. I mean it was sort of obviously had to raise rates, right, maybe it wasn't at the time, but in hindsight it was going down. I don't think is going to be as easy.
And the data.
Dependency, I think comes from the fact that we can't rely on history. But at the same time, data dependency is making things very volatile, especially on market expectations. So we're literally taking I mean we're taking it three cuts in twenty twenty four, but also one meeting at a time.
How about if you haven't put cash to work here, I don't know, it's kind of tough one. I think John Tucker was going to put some cash to work in some money market at four point was it six percent or something?
Was well known the Goldman Sachs markets market. Just like my question is of our stock's going to see competition from the higher or for bonds at some point fixed.
Income, well, cash has been nearer five and there was no competition, right, So I'm not sure if bonds are going to be necessarily any different now the price has been it's been favorable for bonds, right, but that also means the incomes going down, so lock them in.
We've heard some people maybe reposition the portfolio, maybe maybe take some of the gains from the stocks that really run, whether it's the big tech and putting.
Is that something you guys do too, and repositioning your portfolio. How often do you do that?
Yeah, So we have institutional portfolios, so we have it's pretty much fully invested and there's an ips that we have to stick to. So what we do is oftentimes we have seen this in the last not just two years, but going back to pre pandemic, a huge discrepancy between growth stocks and value stocks. So we do separate them. And when growth stocks run as they have, we take the gains. We take the gains and reinvest it into
the cheaper stock. So that's kind of how we deal with some of the irrationalities of the market.
So I'm always looking at interest rate sensitive sectors as I'm sure everyone is. I look at real estate stocks, I cover them. Are there any sectors in particular that you're really eyeing as we head through this, you know, rate cut cycle. Are there any sectors that you think could really outperform from this?
So small caps certainly, and we have seen that actually starting in July. Also starting in July, what you saw were some rates public rates that were recovering just to give a sense. I think office rates since the end of twenty twenty one, when FED really started to raise rates, it was down like forty percent or so, but you really saw that recover since July. So a lot of the interest rates sensitive areas. Not every area was max seven, definitely wasn't. I think those areas are poised to.
Outperform, and again they're are performing today. The S and P five hundreds up four tens of one percent, but the Russell two thousand and so point seven percent, so we're starting to see that already. Anna, thank you so much for joining us on a Rathbund Chief Investment Officer lyrical soprano. I am googling for some of her performances as we speak.
That's what I was doing earlier.
Oh no, so I'll be checking it out on the commute home here see BIZ Investment Advisory Services.
That's the day job.
But a lyrical soprano, I want.
To learn to hit those notes.
Oh please.
My sister's a great singer, so she's the only one that got to I think I'm like.
An alto too. Whatever is probably maybe right before tenor okay, we can't do a due.
Get up there. Thank you.
So much.
Annah, you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
We love talking to Kate Richard. She's the CEO and co CIO at Warwick Investment Group. We love talking to Kate just to get a So what's happening in the world of global energy, natural gas, crude oil? Kate, thanks so much for joining us here in our studio. Let's talk about just WTI crude oil WORRE. It's seventy one bucks a barrel here, we did fall below seventy here. Give us the state of just global crude oil. Is it a supply issue that's.
Been pulling oil down or is it demander a little bit of both.
I would say it's probably sentiment more than anything else. There's nothing that could explain a twenty to twenty five dollars barrel drop in prices for oil fundamentally. But it's very important to remember that oil is often not a fundamentally driven commodity in terms of pricing, the financial demand for oil and petroleum products is actually thirty times the
size of the physical market. So if you look at all of the contracts that are treating for oil and oil products such as gasoline, jet fuel, et cetera, that market is thirty times the size of the actual physical market for oil. And so what that means is that the financial sentiment around oil can actually have an enormous impact on prices that isn't actually reflected in fundamentals. And I'll talk about fundamentals.
In a second.
If you go back to twenty fifteen to kind of illustrate the point that I just made, in twenty fifteen, we had a two percent oversupply, so not horribly oversupplied market that triggered a sixty percent price decline. That doesn't happen in a normal market. You don't have like a two percent oversupply and multifamily and a sixty percent decline
in rents. So that's fundamentally what we're dealing with in terms of sort of the sentiment around oil, and that kind of goes to the hedge fund point we were talking about earlier. I will say that this sentiment around oil is a little bit driven by Chinese demand. So Chinese demand numbers are not great. They actually contracted in Q two on a year over a year basis. However, twenty twenty three was exceptionally strong, and China is about
seventeen percent of the market. When we look at the idea that you could extrapolate Chinese demand to what's actually going to happen in oil prices, I would say two things. Number one, the correlation of Chinese demand to global demand, so seventeen million barrels a day of demand to what happens with the other eighty three million barrels a day of demand is like six point eight percent, So on
an our square basis, that's meaningless. And if you look at Chinese demand, when you look at Chinese demand to non OECD demand, which has been a driver oil growth, and so that's important, it's zero point one percent, so obviously meaningless as well. So China's weighing on sentiment, but we need to think about what that actually means in
terms of global demand growth. And the last thing I would say is that oil and gasoline demand were at all time highs last year, and they are also at all time highs this year, so really nothing.
To explode three dollars a gallon, I'm coming.
In gasoline correspondent, this is guy.
Well, I mean, you could the FED can think oil prices for being able to, you know, even entertain a cut. If you had ninety to one hundred dollars oil prices right now there, it would be.
Said on an inflation adjusted basis deflation.
Good question.
Oil is at two thousand and four levels. Wow, wow, which is incredible for the most probably valuable commodity in the world.
So, I mean, of course we're sitting here in a very special week. We've got the FED tomorrow. How does this all play into that expand a bit more on that.
Well, you know, obviously, I think when you look at the impact to consumers, we also are thinking about it being an election year, and I would not say that the correlation is you know, it's a spurious, spurious in terms of correlation, and it may not be causal. But normally we have weak oil prices in an election year.
That's number one.
Number two, it's refinery turnaround season after peak driving season, and so you are going to have you know, refineries undergoing maintenance, so they will be consuming less oil that will make demand look a little bit worse, and so we're seeing a little bit of an impact from that. But you know, when you look at like overall inflation levels, inflation has cooled over the past year, but we're not
back to twenty nineteen levels. We're still you know, if you look at the price of bread to gasoline, you're still much higher than twenty nineteen levels. And oil just has helped a little bit because it probably really is undervalued, especially relative to the cost of supply.
Alps front, at least from my perspective and reporting on this whole AI play for global energy, and it comes down to simply, you're going to build all these computer farms and things and all that kind of stuff. Somebody's got to fuel it. And the question is it coal? Is it gas? Is it oil? Is it nuclear? How do you guys think about that?
Whole thing?
Is people trying to say there's an energy play here to AI.
Yeah, I mean the future of AI is going to be who controls the energy infrastructure related to it? Clearly, and so then the question becomes is it natural gas, is it nuclear? Is it renewables?
Is it coal?
I think that you know, what we see as big tech is certainly hanging hopes on the AI revolution and the growth and data centers that will be needed on a nuclear renaissance, and there's some interesting things to say with respect to that. So number one, uranium prices are down twenty percent, and that's partly because Kazakhstan announced that it's increasing production a bit. Secondly, the House and Senate just passed a ban on Russian imports of uranium, which
is about twenty percent of the US market. US is the largest consumer of uranium in the world and that kicks in in twenty twenty eight, so the US consumers will be needing to look for alternative sources of supply for about twenty percent of their supply. And lastly, we are starting to see groups like Amazon go and buy nuclear power plants to see if they can power some of data centers with uranium powered. Nuclear nuclear is clearly carbon neutral, and it also has the most uptime of
any power producing asset in the world. It's like over ninety percent uptime, So uranium is very interesting, especially given the selloff. The other question is how much of this is powered by natural gas, and that is a very interesting strategic question for the US, because the US is North America is a natural gas province, and we are the Saudi Arabia of natural gas, and we have cheap domestics sources, especially with gas at two forty. However, gas
is in pretty steep contango. So December twenty twenty four prices are at three dollars three dollars a M versus you know, two forty spot prices, and next year it's at three eighty and M. So that it shows that we're in pretty steep contango. The market's expecting future higher prices, but remember gas is fundamentally driven by weather, and if winter doesn't show up this year, as it has not for the past three winters, you could see lower prices.
Although I have to admit, I just got a tweet from one of my favorite ski resorts out west. It's snowed last night.
It's coming.
Good news almost times guess that.
Guess now?
I just looked at my little Bloomberg charge down like thirty percent from recent highs over the last year.
So is that a supply issue?
Yeah, You've had a fair amount of new supply come online in the US because of droll and completed wells and you also have to remember that most oil wells in the US produce natural gas as well. You know, like thirty percent of permium production right now is natural gas, and as those wells get older, they become gas or overtime.
So this is one of the reasons that people have confidence in building petrochemical and lergy export facilities in the US because we have such robust supply and we're even getting it basically as a free buy product from our oil wells.
And I know, as we were talking about earlier, hedge funds are net suor oil for the first time since the datas started being collected in twenty eleven. I mean, when we think about smart money making this decision, do you think that that permeates into the rest of the market when we're looking at investors more broadly.
I think tactically, Number one, it's refinery season. It's refinery maintenance season, so your bid for oil is less. That's number one. Number Two, it's an election season, and usually prices go down into an election. I mean you could say that's in the interest of an incumbents. And then lastly, you have a weak Chinese number and that is going to spook the market, although we do not think weak
Chinese demand can be extrapolated to global demand today. So if I were tactically positioning, I would say I would be pretty net short too, however, but I would probably close that trade out pretty quickly because we have probably the most disciplined OPEC we've ever had, and OPEK under the current Saudi leadership is very focused on price stability. They do not want thirty they do not want one
hundred and twenty dollars oil. They really want it to stay in a tight band because they view that as best for their customers, and they've done a very good job governing the market. So you know, just an example of that is two weeks ago, OPEC came out and said we were supposed to increase production one hundred and eighty thousand barrels a day, and we won't. And that's how they're governing the market. So I think you can make these tactical trades, but you're probably trading in a tighter band.
Now.
It doesn't mean that you won't. You couldn't have a temporary real trade off or trade up, but I think you have a market that's being governed in bands the way that it wasn't in two thousand and eight, for example, is the.
Fact that the US is now a net exporter for the first time like in ever? Does that undercut Opek's ability to really be that driver of price.
OPEC has teamed up with Russia and they are definitely the largest producer in the world. US is like thirteen percent of supply.
So a lot though, isn't that on the margin? Does that not impact that?
So I got some knucklehead in Texas or you know, Louisiana pump and oil because he or she can and their cost is for your fifty dollars a barrel?
Is that not impact the world markets?
It does?
It absolutely does. The point I'm really making is that OPEK has a cartel with Russia, controls over a third of global production, and they have been committed to price stability. But yes, of global production growth over the past ten years has come from the United States. Right, the United States is really only jurisdiction.
But here's here's the final question. Can you answer this one? Because nobody else can and I can't and you can't. Why can't we pump gas in New Jersey?
Do you have any ideas The question of the day it.
Actually there are only two states.
It's I don't think it's you mean where they pump it for you, right.
A pump it for you organ. That organ just went to like, it's a good question.
I think it's a luxury.
I agree, and it's a luxury for you. Thanks Homer.
All right, that's how we roll, Kate. We see when Alex is not here, we go off the rails. Yber.
We appreciate it. Kate. Thank you so much for joining us.
You know some of the smartest talk that we have discussion that we have on global energy, thanks to Kate Richards as CEO and co CIO of Wark Investment Group joining us live here in our Bloomberg Interactive Broker studio.
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