Ukraine, Oil, And The Supply Chain

many bricks in the wall of worry. Now let's add another one, geopolitical concerns, another significant headwind for this market to digest. Let's see how the pros are doing it. Tracy McMillian, Global head of Asset Allocation Strategy at Wells Fargo. So, Tracy, you think about this stuff on a global scale. We now have a hot war in yourp um. How does that factor into your calculus as you talk to your

clients about where to allocate capple on a global scale. Yes, we we certainly have had to make um some adjustments here. But what we are killing alliance telling investors is that amid this uncertainty that is certainly being compounded by the war in Europe, to make sure that they're going back to basics thinking about what their risk tolerances, what their time horizon is, and making sure that that does align

with their allocations. A short term horizon means they should probably be holding more cash here, probably more short term fixed income, and a longer term horizon, a more aggressive risk tolerance. Those investors might want to start dollar cost averaging in um We are down ten percent or more in some equities markets globally, so it might be a good time to, uh, you know, break their cash into different buckets and start dollar cost averaging into equities, especially

if they're below their longer term targets. And where would you go? I mean, in terms of sectors, what do you think is a good place to buy undervalued right now? And what do you think has run too far too fast and it's still overvalued because there's still a lot of big evaluations out there. There are absolutely and you know, one of the places that that we're looking right now is information technology and communication services, so those growth areas

where we see very high quality earning. We also still like financials because even though rates have come in here um as we've seen a flight to quality, we do think that the trend is higher in interest rates. So we think that financials have uh you know, come down in price. The valuations looked there and uh you know, through the course of the next six eighteen months, we see some value there. Um where we would stay away,

we'd stay away from things that are more defensive. So you know, thinks of utilities um and also um consumers stay poles, consumer shape as we think are going to be hit very hard by additional commodities inflation. So those are two areas speaking of speaking of tracy, commodities inflation. Look at your oil shirt right now. Unbelievable. I mean, Greg Jarrett was just telling me that the i e. A Is going to deploy emergency oil stockpiles. Um, how

much can they really deploy? Mr market asked and bid up eight percent? So now uh w t I is trading at a hundred and three dollars and forty cents a barrel. Brent is up at one oh five thirty. UM. It's just amazing to watch these games in oil. Whatever I'm going to enter, Paul, are we energy independent? I thought we were. I thought we're all going green? Tracy, have I missed the energy trade? Uh? Oil is certainly much higher than we originally thought going into this year.

But things have changed, and the war in Europe is making a tight commodities market and tighter UM. So the off ramp to lower inflation, we think it could be prolonged. And a big part of that UH inflation is going to be that commodities markets and that is across the commodities complex are going to continue to be pressured higher. If we get this kind of inflation continuing, you're gonna have to be Tracy mcbillian. But it was unfair. I'm sure you hear that all the time. That will be

here all week. I looked it up and mcmillian's apparently an old Scottish name referring to I guess the offspring of a bald man, or maybe it's a Gaelic like a monastery or community of Gaelic monks. What do you think, Tracy, I mean, it's a perfect name for wealth management, isn't it? Yes, it is. But I have heard from my clients UM that I should be Tracy mcfillian, So I'll have to look into that. What's the what are you look for

from the State of the Union addressed tonight? We think the market is going to be paying attention to so there's certainly going to be a paying attention to any um, you know change and energy policy. I would say, uh, you know, do we need to be focusing more on energy security? Um over you know any climate objectives at this point? Um, so that that's certainly something we'll be

looking for. We'll be looking for, um you know, what the plans are at this point for build back better you know, is that still alive or are we moving on to other uh initiatives? And you know, I think, um, you know, another thing that we're certainly going to be watching for is any change to our policy towards um,

your Russia or Ukraine. So you know, three big things there absolutely or I think a lot of folks for with tuning in here Tonitracy McMillian, although the do pit games on tonight, so I'm gonna have to go back and fourth. But devil sale goes Tracy McMillian, head of Global Asset Allocation Strategy for Wells Fargo, giving us her thoughts. Boy, looking at oil here nine up nine percent here a hundred four hours forty cents of barrel. Let's break that down.

Let's take a little bit of extra time and look at oil here. We can do that with Julia Fanzerious Bloomberg News. Oil's future reporting pretty grouped to Bloomberg Markets corresponded, Julia, what's going on today? Is this technical? What's going on? Why is oil up nine? It is not technical. It

is all on the headlines right now. So starting off with the fact that traders are finally deciding that oil exports from Russia and energy supplies in general are going to be impacted by sanctions, even if it is indirectly, and today is the day where they're just realizing, Okay, this is the moment that we have to start pricing

this in more. And then we saw that the i e. A decided to go and have a crude tap into their crude releases for sixty million barrels, which at first you're like, okay, so maybe crew prices should have slowed down a bit, but no, but you know, it's supercharged the rally, unbelieved supercharge the rally. And the reason is because trainers are saying, well, that's not really that much compared to Russian experts. I think it's up to six

days of Russia's more than zero. It's more than zero, but it's letty, what in the heck is going on here? I mean, yeah, I get that, you realize, oh, that's not very much in wait, what we used twenty million barrels a day here, a hundred million barrels a day globally. Uh, but you knew that before this, right, and it's better than zero. Well, folks, you guys should really witness Matt Miller's face. Rain is exploding. Not even talking cars yet.

I know, let's not, let's not, let's not open that door. But to Julia's point, what's interesting here is and I mean it's everything that Julie said. I asked her this before we became on the show. Why is oil supercharged right now? Because nothing has really changed? But she makes a really good point on the sanctions bit of it, because that's the part that I think a lot of people are looking at. Remember, the energy payments have been taken out of swift for the moment, or any transactions

or any swift actions that they might do. But I think the assumption here is that eventually that's going to change. So, yes, you're right, oil was soaring quite a bit before. But these headlines sometimes if there you did see immediate drop on the headlines, which would be where you're simple extra supply drops oil narrative comes from, but then you really have traders reconsider and it's kind of supercharged it. And that's a pretty normal thing to see for traders, not

just an oil but you see in stock markets. You see it in all assets. Right when when there's a sign that an incredibly large institution is all of a sudden freaking out, then traders go, WHOA, we're going to run out of oil, Let's buy as much as we can right now, exactly. And it was that knee jerk reaction that from the I A that then have the kne jerk reaction in the crewde markets. What's the futures markets? What are they telling you as you take a look

at them now? Is just oil gonna come down? Ice going forwardard? What? Oh? No, the futures market is saying quite the opposite. We're backward dated. So we are seeing backwardation, backwardation, yeah, and that find that for me again because I'm in equad worse No. Yeah, So that means that traders are paying more money to get their hands on barrels right now, and we're not seeing that go away because supply is tight and demand is high, so these prices are not

going to go down anytime soon. OPEC they're meeting tomorrow and it looks like they're also going to continue with their four hundred thousand barrels a day, and we know that they're not actually meeting that output. So still supplies are tight and demand is high. Every time oil gets to these prices or goes down drastically, I have to relearn how to look at the forward curve. CT is a great way to do. Do you see t also

on the Bloomberg terminal. I was using Ohman before and trying to figure it out from there, but it's so difficult through the options market the contract. So I'm you know, I don't think about it the right way, but if you use CT you can. Actually it's right there in front of you. Paul, on any uh, I'm guessing on pretty much any commodities contract, you can just type CT go and pretty when are some of these oil companies in the shell patch, you can and say I gotta

I'm gonna start drilling. Yeah, And re told us just now that the Biden administration is reminding people there are nine thousand leases out there that haven't been used. Greg Jared, at some point it is just gonna leave exactly, wildcatting exactly. Well, it comes down to the point on backwardation, right because if you actually listen to what some of these CEOs are saying, they're saying, well, yeah, we're in deep backwardation. Yeah, the spot prices are looking really good right now, but

that's not sustainable. Remember, you have to look at the future's curve and if you have all that demand right now, what are good people going to buy later? So a lot of a lot of these American companies or American shale producers are looking for that backwardation to lessen just a little bit. So those spot prices aren't all your demand essentially isn't targeted in one point in time, and it's more of a longer term play and production plan.

To add some Mike mcgloan Bloomberg Intelligence, Commodity strategist, he's saying we're gonna see fifty dollar oil and then not to distant future. He thinks it's gonna come back big time. Uh So that whole supply demand thing. But we appreciate getting some color here. Juliette Fanzaris, Bloomberg News. Oil's future reporter and Cretu Gupta Bloomberg Markets correspondent, just helping us break down a little bit this big move up what

we've seen in energy across the energy complex. But we're we focus here on w t I crude oil, Brent crude oil brants up on seven point four percent on five dollars per barrel, so definitely some supply issues. We know the demand is there as this global economy continues to reopen, the question really is supply So interesting to

see what we hear out of OPEC tomorrow. Another difficult day in the markets here as in vestors trying to digest what we're seeing on the geopolitical front, particularly out of Ukraine. Let's get the latest with Megan Hornuman, director of Portfolio Strategist Strategy Advertence, Chief Investment Strategists Adverten's Capital Advisors. Megan,

thanks so much for joining us here. How do you think about your portfolio your discussions with your portfolio managers as you have to add geopolitical risk to the potential wall of worry. Ye. Absolutely. The one thing that's the most important is knowing what you own, So not just from the broad asset allocation perspective, making sure you're well diversified.

Even though coming into this crisis no one wanted to touch bonds at all, we continue to advise our clients at least have some portion of the portfolio in some defensive bond positioning because they will consistently be used as a portfolio diversification tool. So in that event, you have to know what you want from the asset class perspective. Then when you delve into your whether it's regions or sectors,

what is your exposure to Russia itself? Um? Investing in international equities, specifically on the developed side has been something that we haven't shied away from. So we're consistently having conversations with our manager looking at what is the company's balance sheet look like, what can they withstand from an energy or commodity increased perspective, seeing what kind of impact

that may have on future earnings. So are you're going into portfolios and selling uh Russian assets and anything related to Russia? And I wonder, I mean, I can understand making that move, um obviously, but it must be difficult at a time when there probably are few buyers. Am I seeing that correctly? Yeah? Unfortunately, we have very little

of any exposure to Russia. When we look at our overall asset allocation, our managers that we utilize have done that job for us before the crisis and then throughout the crisis. So I'm not necessarily concerned about the exposure to Russia itself. You have to look beyond that now, um you know, is their bigger concern and some of the other exposure that we have. The one thing that history tells us is you had mentioned selling into this.

It's very dangerous to sell into geopolitical events when you don't know what kind of change, if any of this is going to have to the fundamental perspective. It's also dangerous if you don't know, um, how far the leader is going to take this, which we do not know how long, how far Putent is going to take this. The most important thing is just to make sure that you're well diversified, that your portfolio over time can withstand short term periods of volatility. We ultimately do believe that

this will end up being short lived. We don't know how much pain that will occur. In the meantime, it's very difficult to watch, not just from the humanity humanitarian perspective, but also watching these daily moves in the market. So we're telling our clients consistently, so let emotions override your long term risk, your long term objective. Be very careful to be selling, because once you sell, your locking in losses, and that can be dangerous for the long run. It's

proven to be dangerous for the long run. Stay invested. Have dry powder, which we do and we have had coming into this year, some dry powder to look for opportunities. Just consistently be monitoring what you own. We do believe the managers have made the right decisions within our asset allocation to mitigate some of the exposure that they may have to this crisis. And Megan, we also have a State of the Union address this evening the first by

President Biden. What will you be looking for? What will your fund managers be looking for? Here? Right now? I think the one thing that that's working as unity. We've seen that just from these sanctioned perspective is the Western world forming together and putting these sanctions from the Russian government one by one um and it is the very unified approach that right now, especially with the just the tragic situations that everybody is looking at on television all

day long. We need some unity and confidence. But as far as I think what people will be looking for tonight is is that, you know, bringing the conference back in the United States, because people are already speculating about what may or may not happen as a results of this with other countries, and I think that's dangerous, and so we really have to create a sense of confidence that we are unified with our other counterparts and we against what Russia is doing. I think that that will

help to some degree. But people will be looking from the energy perspective, and it's difficult at this point for the administration to kind of do a three sixty on some of the green energy initiatives. But I think people will be looking on some of the things that the administration can do for the short term that can help alleviate some of the pain at the pump for for Americans. By the way, just got about thirty seconds left. But when you're looking to diversify, do you look into commodities

as well? I mean typically people and retail investors think of just stocks and bonds, But do you look at gold, do you look at oil? Do you look at aggs? Like how far do you go, so we will always look at them because they're considered. We kind of lumped the commodity these into what is our alternative exposure, but instead of focusing on some of the different commodities with its crude oil goal because they're highly volatile and our clients really have more of an eighteen to twenty four

month time frame. So what we would focus on is other real assets that that can give the same types of characteristics in the given our expectation for economic growth. So thinking about things like real estate or infrastructure. These are summarias the market that we would focus on. Now.

I think it's it is a very risky game to be entering into oil now, specifically because people will be doing it on a speculation trade on what's going on over these all right, Megan, thank you so much for joining us giving a couple of minutes of your time. We appreciate it. Megan Hordeman, she is a chief investment strategist Adverten's Capital Advisors. This is the big take, the best of Bloomberg's in depth original reporting from around the globe.

We're running on a financial system that's on old technologies. We're seeing prices reach fresh record ties what unfolds in mid terms, we will no doubt see again in the next presidential election. The Big Take on Bloomberg Radio. All right, another really cool and impressive Big Take story today out on the Terminal and on Bloomberg dot Com Slash Big Take this one. This time Bloomberg Opinion measure at President

Biden's presidency across fourteen metrics. And we have the reporter here that focused on the supply chain because that's one of our favorite topics here on Bloomberg Markets, Brooks Sutherland. She's a calumnist for Bloomberg Opinion. She joins us here live, I say, live in our Bloomberg Interactor broker studio. So after a couple of years of call ins, we got broke back in the studio, Brooke. You gotta fix the

supply chain for us. It's killing us. Where are we right now when you step back and we take a look at the global supply chain? Are we any closer to fixing it? We are? But I will say that nothing is moving is quickly as anybody would like, at least of all c e O s, but certainly also

yes or President Biden. Um So we I mean, I will say there's been incremental positive commentary coming out of industrial CEOs where they are seeing some improvements on things, whether it be resins, uh you know, GM is saying they'll have enough semiconductors to significantly ramp up auto production this year. Rockwell Automation is also seeing some improvements and semiconductors. So there is progress, but it's taking a long time.

And I think what the result is is then you have a lot of these industrial companies banking on a significantly better environment in the back half of the year. That tends to make investors very nervous. These back end waited forecasts have a way of not always playing out like we all hoped they might um and so, you know,

I think it's just it's slow people. I should point out the people that you're you know, in your day, what you do every day is for Bloomer Opinion, it's cover the industrial sector of America, the heartland of America, the really cool companies. That's why we're talking about some of these companies. But the auto companies, they were the kind of the first place where consumers saw, boy, we've

got a problem out there. And I think that's where consumers are really looking to see when auto production does in fact ramp up right, And you know, the hope is this year that we're going to see some big improvements in volumes. But again, I mean, I think it's anybody's guests how that actually plays out. And you know, the answer to the semiconductor problem particularly is very intractable. The way you solve it is by adding significant amounts

of new supply. You cannot do that overnight. So there's a huge wave of investment underway just in the US alone to build new semiconductor plants. But this takes years,

It takes along TI. I just called yesterday the GMC, my dealer up in Westchester, Empire UMU MC, and she said, I haven't seen a Yukon in months here, and if we do get one, it's not gonna have uh might not have blind spot um detection, it might not have adaptive cruise control, it might not have heated and ventilated seats because the chips just aren't there for those things. I'm also hearing about delivery issues. Verry rid Holtz just had a Toyota FJ forty shipped up from Columbia and

it sat in customs for five weeks. This is the kind of thing that the president can actually impact. Is he doing stuff like that at the borders? Is he encouraging people to onshore UM production? You know, what is the administration doing in terms of actions now to try and get it going again? Sure? I mean on the

semi conductor front, just one point. So the manufacturers are also redesigning their products to get around UM some of these issues where you know, you have shortages of one ship but more of a supply of others, and so

they're retrofitting up. So it's not just cars. But to your point, I mean, it is actually very hard for the Biden administration to make a huge different in the supply jam because so much of this is controlled by private entities, and not just you know a handful of private entities, but an entire system that historically has not always had the best track record of talking to each other. So whether that's manufacturers, whether that's railroads, trucking company, the

sport operators, the actual workers on the docks, warehouses. So what the Biden administration is said is they are trying to be a deal broker. They want to bring these different parties to the table. They want to make sure that those lines of communication are open. Now, we are seeing a little bit of progress in the ports, specifically those West coast ports Los Angeles and Long Beach, where you know, there's been such a long back all the

ships that has gotten incrementally better. We are still a long way away from normal operating conditions in those ports. Um. And then longer term, you know, what they would like to do is make investments in infrastructure, and you know a huge portion of that goes to the ports in terms of making our existing set up much better suited

to handle the kind of cargo demand that we're seeing. Um. You know, there's a lot that could be done in terms of automation, in terms of you know, just rearranging how this logistical apparatus works for the ships that we have in our time. But again, you know, back to the point about the semiconductor plants, those are not things that you can do overnight. Are we gonna on shore anything? Of note? Your your Industrial America. Are we gonna on

shore anything? So I think this is happening to some degree, and you've seen companies like snyd Air say, look, we're going to add some manufacturing capacity to support the high levels of demand. Um, you know, I talked to the automation companies like Siemens and Rockwell, which of course would be big beneficiaries that any onshoing movement, because you're not going to do it to hire a ton of American workers. You're going to do it if you can make the

automation investment to make all of the economics work. So I think we are seeing this particularly lower down the supply chains, not necessarily the big name brand manufacturers that we know, but their suppliers. I want to see a big fab plant built right in maybe Columbus, a high right writ in the middle. We're doing that, okay, in the great state of Ohio in the vehicles the other the Ohio State University. Brook Solyin, thanks so much for joining.

She's a columnist for Bloomberg Opinion. Joining us here in our Bloomberg Interactive Broker Studio. You can read all this cool big take stuff Bloomberg dot Com Slag Big Take or Ni Space Big Take go on the terminal. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Pet On Fall Sweeney, I'm on Twitter

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