US Retail Sales Strengthen

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So let's get more in those retail sales.

Mari Shre, senior equity analyst at Columbia thread Needle Investments, joins us now on the headline, it looked quite good, particularly when it comes to the jump and car purchases. What were some of your takeaways from the report this morning.

Yes, thank you again for having me.

As you said, it was a solid sales report across the board, even when adjusting for the later start to the holiday and the unfavorable weather in the first part of the month, and we're really seeing the consumer show up and spend across category into the holiday season as we expected.

That's kind of where I want to go, Mary. What are you hearing from the retailers just about the holiday shopping here.

Yes, it's interesting because I think it was a very strong Black Friday. There was a lot of concern as we spoke about regarding the shorter holiday selling season, but I think that has in fact really motivated consumers to get out and spend, and if anything, I think the retailers have been positively surprised by the performance in the business post Black Friday, and we've even seen in some cases them pulling back slightly on promotions.

So I think overall the tone.

From the retailers is optimistic and hopefully we continue to see the strength as we as we moved through this final period.

TBD on tariffs, though, so I'm wondering two things. One what you've heard from retailers about how they prep for tariffs, and two if we get a sense if people are buying ahead of particularly maybe when it comes to cars, for example, or like a dishwasher or something along those lines.

Those are great questions.

Most of the companies that I speak to have been moving production out of China for almost ten years now, so actually a lot of the companies are suggesting that the impact from tariffs will be pretty limited. I would say the one real exception is consumer electronics. Listening to best Buy talk, they still say fifty percent of their goods are sourced from China.

So outside of consumer.

Electronics, I think the companies feel pretty good about their ability to manage through this situation, but of course they are also saying any tariffs that they do feel they will try to pass along some of that costs to the consumer in terms of bringing in goods earlier or consumers buying goods are earlier to.

Get ahead of that.

I don't really get the sense that companies are going to be doing that.

Aggressively because there are still a lot of questions about what the what the tariff.

Outcome is, So I think those impacts are more minimal at this point.

How are consumers paying for this stuff that they're buying with all these goods and services here it seems like they've drawn down here reports that they've drawn down their savings.

Are they putting this stuff on credit? And is that a concern?

I think at the lower end, we're absolutely seeing that consumer, which has you know, been stretched for a couple of years now rely more on credit, as you said.

But at the high.

End, you know that consumer is in very good shape with the wealth effect between the.

Housing market the stock market. So I think that.

Consumer is you know, behaving a little differently versus at the low end, where we are seeing them rely more on credit.

What are your topics right now?

So I my topics are kind of a combination of some of the quality share gainers that we've talked about on this show.

So some of the large retailers that offer.

That combination of valuing convenience that's really resonating with the consumer right now. So I would put the Walmart, Amazon, Costco, TJX in that bucket.

But then on the other hand, I think there.

Are some really interesting turnaround names, specifically in the apparel space, where you don't need a lot of top line growth to generate pretty meaningful margin and free cash flow improvement. So some of the names I would highlight on that list would be some of the specialty retailers like Gap and Victoria's Secret, and even some global brands like PDH and Contour Brands.

All right, Mari, thank you so much for joining us.

Mari Sure, she's a senior equity analyst at Columbia thread Needle Investments. I love to chat with her on these days when we get retail sales, get a sense of how the consumer's doing out there.

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All right, let's get back to the markets here.

Bank of America had an interesting note up that said, look, guys, cash levels are going to the point where you might actually want to start selling equities rather than buying them. Apparently fund managers have been reducing cash holding to a record low, and they're now.

Below four percent. So is that a cueue for you?

Well, joining us now for more as James Abade, Managing director and Chief investment Officer of ourt Center Asset Management. James, is there a cell signal within the equity market?

Well, I think if you look at you know, just like at the tail end of the dot com bubble, clearly price momentum and valuations now are beginning to outpace the improvement and fundamentals. I mean, just looking at the top ten stocks, probably the biggest disconnect is in Microsoft and Broadcom. I mean, clearly what we see that's similar to the dot com environment, namely like a company of

The valuation is just extraordinary. The only differential I call out from the late nineties is they actually have earnings in free cash flow, which is a little different from.

Some of the stuff I was selling back in the day.

James, where do we go here in twenty twenty five, if in fact we have some valuation concerns in this market.

Well, I think you know, the way we look at stocks from evaluation perspectives, we emphasize future growth reliance. That is essentially, you know, what is the metric companies need to reach to be able to justify their existing valuations. And for us on the overall SMP five hundred, the measure now hasn't been this optimistic on future economic profit creation going forward since two thousand and nine, and close to the all time high back in two thousand and two.

So what's your best well, not guess because you're actually putting money to work, Well, what's your best set up then into next year?

Well, I think when you look at next year, you know, you have to think about two events happening, right, we have, you know, heading into the year, investors appear to be universally bullish. In fact, we saw yesterday the Conference Boards Consumer Confidence Survey showing individual investors being the most bullish they've been in forty years, and consensus seems to be the nominal and economic growth is going to be exceptionally strong.

I mean, at the.

Same time this is happening, while manufacturing PMIS remains stuck in recessionary levels, services actually appear to be rolling over and even today US industrial production and capacity utilization fell not showing any type of inflection.

So our view is to stay defensive.

We think long treasuries might be the ultimate contrarian trade for twenty twenty five, and classic defensive growth stocks in healthcare and staples, although very out of favor right now, but many of you could pick up the pees of nine to ten is the place to be heading into next year.

How about the fixed income here? Do I sit my two year treasury at four point twenty four percent or do I take some credit risk?

I would stay away from credit risk clearly if you think that the economy is not one where the cyclical or industrial side is going to catch up to at least the buoyancy and the services, I think you want to with credit spreads being at extremely tight levels. Consistent with really a zero equity risk premium. You want to be in safe assets, and that would be treasures instead of credit.

All right, James, thanks so much for joining us. Always appreciate getting a couple of minutes of your time. James Abote. He is managing director and chief investment Officer a Center Asset Management.

He is in New York City.

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Something is evolving quite interestingly in the oil and gas market for next year. Yeah. Yeah, we still care about shale, and we care about Guyana, and we care about the Saudia's, but offshore drilling, particularly in the Gulf of Mexico, is becoming more and more of a topic in conversations among my oil and gas folks. And let's get to one of them now. Brian Gavari is chairman of Ineos Energy.

Brian, it's good to see you. It's been a long time.

Hey yeah, Hey, good to see you as well. It's been a while.

So tell me what led to this acquisition, Why do you like it and why now?

Yeah.

Look, we create in ours Energy just literally out of COVID in twenty twenty one. We brought together a collection of all and gas assets we had, We did some major portfolio transition. We took a big us on shore position last here from Chesapeake, so that sort of built up a decent sized two thousand and six and a well positioned an LNG export option. And then the next obvious spot to go to was the offshore Gulf Mexico, which is probably one of the highest margin barrels available globally.

So talk to us about that part of the world. Energy in that part.

Of the world, the Golf of Mexico specifically, what are it the dynamics of getting a barrel of oil out of the Golf of Mexico seems like a tough business.

Now, look, it's one of the most biations in the world. I've got personal experience of it. Sort of you know, twenty thirty years ago, the early pioneering groups of effecting back then, Chevron SHELLBP, that kind of went into that zone. I think there's still a lot of legs. And I think the most important thing about that particular region is

Yeah, exactly, which is so interesting. So you have now Gulf of Mexico, say's deep water, you have LNG export assets, and then you also have gas.

How are all of them going to wind up working together?

Well, look, so we will be exporting LNG probably twenty twenty six onwards. We have the new contract in place, we have effective We have the last eighty months repositioned that onshore position that we picked up from Chesapeake, the Eagle Food position, which was mostly oil. Actually it's like sort of eighty five percent oil with oil liquids. It's got a decent amount of gas. In the these two assets,

What's the competitive environment for you in kind of your businesses. They're down in the golf down in the South Texas area. How do you compete against some of the bigger companies there. What's the strategy in this case?

We're not operated, right, so we get carried by the two main operators, which, as I say, are sort of two the sort of top operators in the Gulf of Mexico and have got the long history of operating there, so we'll get carried as part of that, we'd like to get an operated position.

I think we have big ambitions.

And when we started to create this company out of Ineos, Ineos already massive footprint the United States as a petrochemical company, and as we started to build up the energy business in twenty twenty one, you know that the ambition of our owners Jim Ratcliffe and his two partners has no bounds. And therefore I could see us at some point in the future building this out into something much bigger, maybe in the same sort of size nical company.

Hey, Brian, before we let you go talk about the trading part of it, because clearly BP's trading arm was it.

Is the giant right of all the oil majors.

Excellent has wanted to kind of build up its own trading unit, like everyone kind of wants a pizza that pie.

How are you guys going to do it?

Look as surely hard.

You have to You have to have the DNA and your system to really be successful. We've hired a couple of people that we know well. The first thing we did over the last six months actually last eighteen months who built out a risk structure because of course if you're going to trade commodities, you need to be absolutely ensure that you have the risk framework around that. So

All right, Brian, really looking forward to get getting a more update from you. Keep in touch, let us know when the next events happen. Good to see you, Brian Gavari. He is joining us from Ineos. He's the chairman of Ineos Energy, previously the CFO of BP, which is where he and I started talking.

Years and years and years ago.

So you see, kind of the evolution of someone's career is really quite interesting.

I want to get on one of those offshore rigs, me too.

Did you know that if you do that, though, you need helicopter training.

Helicopter training, yes, passenger.

Yeah, So the helicopter training is you're in a pool and they put you in a helicopter and they dunk you and you have to swim out by yourself, and you don't get certified unless you're able to swim.

Out by yourself. Oh and one of my biggest fears is doing that.

So that's an issue. Okay, I'd still like to try it, but even all right, we'll see how it goes. I always thought that would be I can't imagine being at the the notion on one of those things.

Yeah, I'm doing that dangerous hard work too.

Yeah.

Well, that's why the automation piece of oil and gas is so critical because if you can do that reducing the amount of people that you're putting in any sort of harm's way offshore, like, that's huge, and that's an industry and mining also, where like that automation hand is not just a cost saver, it's like a life saver.

So interesting to see how they manage on with that.

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All right, in the markets, SMP is down by four tens of one percent, the nest I got by three tens of one percent.

What to do? Headed into the FED?

Danadoria's co chief investment officer at Investment joining us. Now, okay, you have on one hand, Bank of America is saying that.

Cash levels are hitting a level where you may actually.

Want to sell equities to your rope price sing you could hit six percent of the ten next year, what do you do.

Well?

That certainly flies in the face of what we've been hearing for a long time, which is, you know, more consistent with a risk on market. You know, consumer spending obviously doing well, you know, not a not a bad nothing like.

A bleak picture for employment.

But I think what's happening and what you're starting to hear in reference is things are getting ahead of themselves as they as they sometimes do, right and you know, as good as it seems right now, and not a lot of reason to expect headwinds. The market is just pricing in good times at a faster rate maybe than

But you know, I think the market has been and.

Continues to be pricing in a very rosy scenario. And you know it's not that we're without reasons to think that that could tamp down, and one of them, of course being that notwithstanding you know, the rate cut this month, when are we going to get continued rate cuts? Are we going to or we're going to have a pause as soon as January.

So from a positioning standpoint, Dana is twenty five. The beginning of twenty five look different for you guys than kind of made me where you ended twenty four.

I think twenty five it's interesting because we sit at the nexus of a lot of different you know, economic input from macro analysts and asset managers, et cetera. And it's interesting just to look across what you're starting to see come in around twenty twenty five.

Outlooks.

Some of them are you know, we're going to see some consolidation, A lot of it is.

We have a good reason to think that the.

Good times keep rolling, at least at at least in the beginning. You know, I think consensus sort of at least the way I see it coalescing is around. We don't have a reason to expect some sort of you know,

Of bills that extend tax cuts, et cetera. So there's there's just a lot that has to be that is still unknown.

But I don't think as you roll into twenty twenty five you're going to get those answers that quickly.

So you to choose what do you do with small caps versus megacap tech? And I know that's not necessarily a fair comparison, but I'm basically talking about growth that's working and that's been tech versus small caps are still waiting for that sustained bid.

It's such a good question.

You know, I am a believer in valuation.

I am a believer that no matter how good the outlook for you know, the numerator right the cash flows, you really have to pay attention to the denominator and how much they're being discounted by. And you know, we're just in another phase where megacap and growth are running wild. And you know, my instinct is to say, you've got to at least diversify into other parts of the market.

You got to make sure your portfolios.

It has a robust keeping of you know, and small caps stand to win, right with a lot of the policies that potentially could be brought to bear are the tariffs, they're not hurt as much by that. Granted, if we have a little bit higher for longer, that's not as good for small caps.

They're definitely more inter.

Just rate dependent, but you know they stand to benefit if it's a risk on environment, and I lean toward at the very least have them in the portfolio, and frankly, if you can stomach short term volatility, maybe even a little bit of an overweight, because over the long haul they should outperform, especially small value stocks.

So, Dana, when you see a security and I guess i'll call your security here, like bitcoin effectively double almost since the election, what does that tell you about just the market?

I guess.

So Bitcoin's really interesting asset, right because you know, on the one hand, there's a whole element of it being potentially a currency, and you.

Know it's unfolding literally before our eyes.

Whether you know it can gain traction in that respect, and what the next administration will do to to make that happen. I think for most investors, though it's really more obviously is it a return enhancer for the portfolio, and you can gain access to bitcoin from that perspective with a variety of btfs. Now we're seeing it right here on our own platform, you know, not just this is not just you know, kind of investors on their own.

With bitcoin and the fact that.

You know, for most people, because there's such an asymmetric payoff, sort of this lotto aspect to.

It, for a lot of people, some.

Small slug of bitcoin actually could make sense because the upside is much bigger than the downside. So I think you're seeing an institutional interest there that maybe wasn't there before, and you can get access if you want to participate. We're cautious about, you know, how much you should put to something like that.

Very balatile obviously, but.

If you want access, I think these ETFs that are backed up by big asset managers take the risk out of you know, the operational risk out of the position.

You can do it.

It was interesting.

Cameron Christ writes Macroman a column every morning, and today in his column he said he really wants a reporter to ask J Powell tomorrow about the surgeon fart coin and what that might say about financial markets and risk appetite. Big Quinn aside. It's a great point when you have the megacap growth at tech stocks and then you have fart coin doing really well.

All right, Dana, thanks a lot, Dana Dioria. She's joining us.

There a coach Eve Investment, an officer over at Investment.

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