Daybreak Holiday: Walmart, Oil, ETFs

Bloomberg Audio Studios, Podcasts, Radio News. 0:00:10.800 --> 0:00:13.520 Thanks for joining us on this special holiday edition of 0:00:13.600 --> 0:00:17.800 Bloomberg Daybreak. US markets are closed for President's Day. I'm 0:00:17.840 --> 0:00:20.120 Nathan Hager, and coming up this hour, we will get 0:00:20.160 --> 0:00:22.759 a read on the energy market after a winter that 0:00:22.800 --> 0:00:25.840 has seen wild swings in the weather, and on trade. 0:00:26.079 --> 0:00:28.120 Plus we'll look ahead to one of the biggest earning 0:00:28.240 --> 0:00:31.080 stories of the week as Walmart gets set to report 0:00:31.240 --> 0:00:34.120 results from the holiday quarter. First, though, we want to 0:00:34.120 --> 0:00:37.040 take a look at the broader investment landscape how it 0:00:37.080 --> 0:00:40.199 may be changing with a new president in office. I 0:00:40.280 --> 0:00:41.920 think it's pretty safe to say it was a pretty 0:00:41.960 --> 0:00:45.400 tough environment as far as regulation goes when Gary Gensler 0:00:45.520 --> 0:00:48.120 was head of the Securities and Exchange Commission under then 0:00:48.200 --> 0:00:52.080 President Joe Biden. Now with a new SEC chief on 0:00:52.159 --> 0:00:55.960 the way under current President Donald Trump, are things starting 0:00:56.000 --> 0:00:59.440 to change for investors? Let's get some answers on this. 0:00:59.600 --> 0:01:03.560 Joining us on this holiday is Eric Balchunis, ETF, analyst 0:01:03.640 --> 0:01:06.800 for Bloomberg Intelligence. Thanks so much for being with us 0:01:06.920 --> 0:01:09.280 on the holiday. Eric, and I know we've got a 0:01:09.280 --> 0:01:13.800 lot of acting commissioners acting chiefs on the way as well, 0:01:13.959 --> 0:01:16.960 But are things starting to change now as far as 0:01:17.440 --> 0:01:19.480 where things sit in your world and ETFs. 0:01:19.760 --> 0:01:19.880 Uh. 0:01:20.000 --> 0:01:23.039 Yeah, There's been a couple of small things that we've seen, 0:01:23.080 --> 0:01:25.320 nothing major, But I think one of the big things 0:01:25.360 --> 0:01:27.680 is esther purse, which she was a commissioner. She is 0:01:27.680 --> 0:01:29.840 a commissioner, and she was in the minority during the 0:01:29.880 --> 0:01:32.880 Gensler era and she had a lot of opposing opinions 0:01:32.920 --> 0:01:35.679 that she would write about. And now she's working one 0:01:35.680 --> 0:01:37.880 of the two commissioners of the Act, is helping the 0:01:37.920 --> 0:01:42.280 acting commissioner. And some of the things we've seen, for example, 0:01:42.560 --> 0:01:46.240 they approved options on some precious metals ets that have 0:01:46.240 --> 0:01:49.040 been waiting ten years. It's a minor thing, but it 0:01:49.120 --> 0:01:51.560 just shows I think she just wants to get stuff 0:01:51.600 --> 0:01:53.640 out the door in the end. You know, she was 0:01:53.760 --> 0:01:58.320 very big on the SEC being a merit based regulator meeting. 0:01:58.880 --> 0:02:01.240 You just want to get the disclose out and then 0:02:01.320 --> 0:02:05.000 let the consumers pick. You don't want to play nanny 0:02:05.040 --> 0:02:06.680 too much in sort of saying. 0:02:06.640 --> 0:02:07.920 This is bad, this is good. 0:02:08.400 --> 0:02:10.040 So I think what you're going to see is just, 0:02:10.160 --> 0:02:12.120 you know, a little bit of Pandora's box opening up 0:02:12.120 --> 0:02:14.560 with products and I think some will be really good 0:02:14.600 --> 0:02:16.680 and successful. Some are going to be a little wild 0:02:16.680 --> 0:02:19.320 and we'll cause some head scratching maybe, but this is 0:02:19.360 --> 0:02:22.120 the ETF industry always pushes the envelope, and they're just 0:02:22.160 --> 0:02:23.880 gonna be able to push a little further. I think 0:02:24.360 --> 0:02:27.200 under this SEC chair, who hasn't been confirmed yet, but 0:02:27.240 --> 0:02:32.640 assuming he is Atkins, he'd be working obviously with Hester Purse. 0:02:32.919 --> 0:02:34.799 And the other thing they did was they moved a 0:02:34.840 --> 0:02:37.440 bunch of people who were on a crypto fraud. They 0:02:37.480 --> 0:02:40.480 moved some people out of that team, and that again 0:02:40.639 --> 0:02:43.200 was another sign that in terms of the crypto, which 0:02:43.240 --> 0:02:45.040 was I think Gensler is like you know, he was 0:02:45.120 --> 0:02:47.359 both known for being tough on that. It's going to 0:02:47.440 --> 0:02:50.960 be more lenient for sure. I would look for a 0:02:51.040 --> 0:02:55.680 ton of new coins and tokens to be etfised, and 0:02:55.720 --> 0:02:58.480 I would look for the industry also to push the 0:02:58.560 --> 0:03:02.360 envelope and some other things like share classes and maybe 0:03:02.360 --> 0:03:05.440 even some things like trying to put private equity and 0:03:05.520 --> 0:03:07.040 private credit into ETFs. 0:03:07.480 --> 0:03:10.200 Knowing they have a more liberal regulator. 0:03:10.240 --> 0:03:12.520 I mean, the regulator is more conservative, but I'd say 0:03:12.520 --> 0:03:14.359 they're more liberal in terms of what they'll approve. 0:03:14.800 --> 0:03:17.839 Well, let's dig into those broad strokes just a little bit. 0:03:18.040 --> 0:03:22.960 What kinds of products are you looking forward to that 0:03:23.120 --> 0:03:26.000 could find some success among investors. 0:03:26.360 --> 0:03:30.440 Yeah, so I think the first two are ets tracking 0:03:30.560 --> 0:03:35.800 Solana and XRP, which are two different networks. They're cryptocurrencies, 0:03:36.440 --> 0:03:40.360 and those two in particular have been the industry has 0:03:40.400 --> 0:03:43.480 been trying to get those approved for like five years. 0:03:43.720 --> 0:03:46.760 And even though Gary Gensler approved Bitcoin and ether, he 0:03:47.120 --> 0:03:50.440 basically said everything outside of that is a security and 0:03:50.480 --> 0:03:54.040 therefore it cannot be put into an ETF under the 0:03:54.120 --> 0:03:58.200 thirty three Act. And they even called XRP and Solana 0:03:58.280 --> 0:04:02.040 securities in lawsuits. And so the fact that the Salana 0:04:02.080 --> 0:04:04.760 ETF was acknowledged recently there was a new filing. They 0:04:04.760 --> 0:04:07.880 got acknowledged. They never acknowledged one of the pasts. Acknowledged 0:04:07.880 --> 0:04:09.840 just means the sec is like, Okay, we know you filed. 0:04:09.840 --> 0:04:11.520 We're going to let people comment on it. It's part 0:04:11.520 --> 0:04:13.560 of the normal process. In the past, when someone tried 0:04:13.560 --> 0:04:16.839 to follow Solana or XRP ETF, they would literally call 0:04:16.880 --> 0:04:19.359 the issuer and say get this out of here. It 0:04:19.360 --> 0:04:22.320 wouldn't even last three days. But this they've been filed 0:04:22.320 --> 0:04:26.200 now for two weeks. They've been acknowledged they're moving along 0:04:26.320 --> 0:04:28.840 the normal past. Doesn't mean to be approved, but it's 0:04:28.839 --> 0:04:31.799 a good sign. That probably indicates that they may actually 0:04:31.839 --> 0:04:35.200 rescind some of the lawsuits, because it would be weird 0:04:35.240 --> 0:04:37.840 for them to approve these while having a lawsuit and 0:04:37.880 --> 0:04:41.359 saying and writing that these are securities. So that's something 0:04:41.400 --> 0:04:43.680 to watch right there. And if Solana and XRP are 0:04:43.680 --> 0:04:46.080 put into ETF form, they have I think a decent 0:04:46.120 --> 0:04:48.880 chance to get some assets. Now, once you get out 0:04:48.880 --> 0:04:50.600 of there, you're going to get into some weird stuff 0:04:50.680 --> 0:04:55.279 like dose coin, Polka Dot bonk. They even filed for 0:04:55.320 --> 0:04:58.559 a trump Coin ETF, a Milania ETF, and a double 0:04:58.640 --> 0:05:03.520 leveraged Malania. So here's the thing though, even if all 0:05:03.560 --> 0:05:06.479 that gets out, most of it will just live in oblivion. 0:05:06.800 --> 0:05:09.839 I think you've got think about the precious metals. Gold 0:05:09.920 --> 0:05:13.400 is the stud, Silver's got a good living, platinum, pladium, 0:05:14.080 --> 0:05:18.160 And then once you get to commodities like coffee, nickel, aluminum, 0:05:18.320 --> 0:05:20.760 some ETFs are tried and failed. I think you'll see 0:05:20.760 --> 0:05:23.320 the same thing here. I think Bitcoin will get like 0:05:23.480 --> 0:05:26.960 seventy five percent of the assets, Ether ten percent, and 0:05:27.000 --> 0:05:30.080 then XRP Solana will you know, fight over the other 0:05:30.240 --> 0:05:33.200 eight or nine percent, and then we'll see one wacky 0:05:33.240 --> 0:05:35.080 one get lucky for a minute, and then you know, 0:05:35.200 --> 0:05:37.720 rise and fall. So I think even though we will 0:05:37.720 --> 0:05:40.799 see a ton of stuff approved, most of the assets 0:05:40.839 --> 0:05:43.440 from the big money in America are they're not going 0:05:43.480 --> 0:05:46.599 to go crazy. They're gonna stick to bitcoin as they're 0:05:47.040 --> 0:05:49.159 that's crazy to most people, to be honest. So they're 0:05:49.200 --> 0:05:51.440 gonna stick to bitcoin, and that's where most of. 0:05:51.400 --> 0:05:52.039 The assets will go. 0:05:52.120 --> 0:05:55.280 But look for some really interesting things. And the thing 0:05:55.279 --> 0:05:57.880 about a Trump and Malania coin etf is I was 0:05:57.920 --> 0:06:00.640 that this was going to be interesting, is that these 0:06:00.680 --> 0:06:01.480 are pretty fringe. 0:06:01.520 --> 0:06:02.560 I mean, they just launched. 0:06:02.760 --> 0:06:05.440 It made clear to everybody that the Trump coin was 0:06:05.760 --> 0:06:07.960 you know a lot of even if the crypto people 0:06:07.960 --> 0:06:09.560 didn't like it. It kind of they call it a 0:06:09.640 --> 0:06:11.599 rug pull. You know, you put a meme coin out 0:06:11.640 --> 0:06:13.320 and then all of a sudden, the people who started 0:06:13.720 --> 0:06:16.279 leave and then the people who came in late. 0:06:16.080 --> 0:06:17.839 Hold the bag. It's like, you know, kind of a 0:06:17.880 --> 0:06:19.320 short term Ponzi effect. 0:06:19.920 --> 0:06:23.120 Now that's Trump is the boss of the sec chair, 0:06:23.279 --> 0:06:26.320 so it'd be weird if you didn't approve a coin 0:06:26.520 --> 0:06:29.640 based on his coin, given that he's the boss that. 0:06:29.560 --> 0:06:30.000 Isn't the work. 0:06:30.040 --> 0:06:32.239 It all gets a little It's going to be interesting 0:06:32.279 --> 0:06:35.280 to see how they deal with this, because we do 0:06:35.360 --> 0:06:37.240 think some of the main coins will be approved. But 0:06:37.320 --> 0:06:40.800 once you get to this really outskirtsy meme coin world, 0:06:41.240 --> 0:06:41.760 will the. 0:06:41.640 --> 0:06:43.200 SEC just sort of let it out? 0:06:43.880 --> 0:06:46.719 That's a question we don't quite know, but if I 0:06:46.760 --> 0:06:48.880 had to guess now, I'd lean towards they've probably let 0:06:48.880 --> 0:06:52.159 most stuff out. But for people worried about how this 0:06:52.240 --> 0:06:55.000 will be bad, most of this stuff will be ignored 0:06:55.000 --> 0:06:55.680 by investors. 0:06:56.120 --> 0:07:00.200 Speaking with Eric Balchuna's ETF analysts for Bloomberg Intelligence, Eric, 0:07:00.240 --> 0:07:02.520 if we're expecting these kind of approvals, what are you 0:07:02.600 --> 0:07:06.880 expecting when it when it comes to enforcement of some 0:07:06.960 --> 0:07:10.480 of the potential risks around some of these new products. 0:07:11.240 --> 0:07:13.480 This is where the big debate on what should the 0:07:13.520 --> 0:07:17.600 SEC behold Should it really police the products, invest them 0:07:17.600 --> 0:07:20.880 and say is this really safe for retail? 0:07:22.280 --> 0:07:24.240 It's sort of I guess like the FDA, at. 0:07:24.080 --> 0:07:27.400 Some point, you know, there's a line between what is 0:07:27.440 --> 0:07:30.480 safe versus Hey, let's just disclose all risks and let 0:07:30.520 --> 0:07:32.560 people have a choice and they if they want to, 0:07:32.920 --> 0:07:35.960 you know, you know, if someone wants beat McDonald's every day. 0:07:36.840 --> 0:07:39.680 It's really their choice, even though that's not healthy, and 0:07:40.040 --> 0:07:43.800 you could argue the government should ban McDonald's. But this 0:07:43.920 --> 0:07:46.040 is the same deal. And I think this sec with 0:07:46.240 --> 0:07:48.840 this chair is going to be a little more like, look, 0:07:49.040 --> 0:07:51.840 just let this stuff out, let people choose, but just 0:07:52.040 --> 0:07:53.480 we're going to put a lot of the risks in 0:07:53.520 --> 0:07:56.840 the perspectives. Now nobody reads the perspectives, that's the problem. 0:07:57.440 --> 0:07:59.760 But I think most people if they see a two 0:07:59.880 --> 0:08:03.720 X Smulania ETF, they're probably going to know it's wacky, 0:08:03.880 --> 0:08:06.840 like they're going to know there's some that it's not vanguard. Okay, 0:08:08.120 --> 0:08:10.880 But this whole thing is why we and BI have 0:08:10.960 --> 0:08:14.120 something called the traffic light. It's based on movie ratings. 0:08:14.120 --> 0:08:17.120 I always thought ETSD movie ratings that way, you know, 0:08:17.760 --> 0:08:20.920 if the name sounds innocent, maybe you know, you know, 0:08:20.960 --> 0:08:23.080 if the if the ETF has some stuff you need 0:08:23.120 --> 0:08:25.120 to know about, you know, just sort of like a 0:08:25.240 --> 0:08:29.640 nasty surprise indicator system. And so we would give most 0:08:29.680 --> 0:08:32.880 of these yellow lights. The two X millennia would be 0:08:32.880 --> 0:08:36.240 read because it's leverage. One ex millenni would be yellow 0:08:36.280 --> 0:08:38.160 because its kind of extra volatility, and there's really no 0:08:38.200 --> 0:08:40.800 cash flows backing any of this. It's like just it's 0:08:40.840 --> 0:08:43.840 like a commodity. So I just think that would be 0:08:43.880 --> 0:08:46.800 helpful for investors to have. Like imagine if you went 0:08:46.840 --> 0:08:50.120 on your Schwab account, you pulled up any ticker and 0:08:50.160 --> 0:08:53.600 it said you know, rated g PG, PG thirteen or R. 0:08:54.160 --> 0:08:56.079 You get a very good idea of like, okay, if 0:08:56.080 --> 0:08:58.600 this is our y and here's the three reasons they 0:08:58.600 --> 0:09:01.400 got rated R tag. To me, that would be awesome. 0:09:01.480 --> 0:09:03.319 We try to create this. We did create the system. 0:09:03.360 --> 0:09:05.840 It's on the terminal. But that's I think how you 0:09:05.840 --> 0:09:08.720 should think as an investor if you're looking at this stuff. 0:09:09.360 --> 0:09:12.040 If it sounds wacky, you know, read the fine print. 0:09:12.960 --> 0:09:15.000 If it sounds innocent, like the Vanguard is some P 0:09:15.080 --> 0:09:17.720 five hundred, that probably is. But every now and then 0:09:17.720 --> 0:09:20.000 there are some with innocent names that are a little 0:09:20.080 --> 0:09:22.720 more involved, like the oil ETF. But I think most 0:09:22.720 --> 0:09:23.280 of these are. 0:09:23.160 --> 0:09:26.400 Going to sound wacky, and they are wacky, so but 0:09:26.880 --> 0:09:29.920 always I would read the perspectives if you can. And 0:09:29.960 --> 0:09:31.440 that's what the SEC is going to say. 0:09:31.520 --> 0:09:34.080 Just put all this stuff, all the risks in the documents, 0:09:34.400 --> 0:09:37.360 and that's that's the kind of you know, because they 0:09:37.920 --> 0:09:41.360 want innovation, and they want things to be out there 0:09:41.400 --> 0:09:44.240 for consumers. But there is a point where you can 0:09:44.280 --> 0:09:47.080 put something out that, you know, is somebody could lose 0:09:47.120 --> 0:09:49.280 money on. But I you know, this is again the 0:09:49.320 --> 0:09:50.800 debate on what a regulator should be. 0:09:51.679 --> 0:09:51.880 Eric. 0:09:51.920 --> 0:09:54.480 Now that we do have a new administration in office, 0:09:54.520 --> 0:09:59.800 have you seen some interesting shifts in ETF flows now 0:09:59.840 --> 0:10:02.400 the there's new leadership in the White House. 0:10:02.920 --> 0:10:03.840 Yeah, it's interesting. 0:10:04.280 --> 0:10:07.080 You know, I think ETF investors over the years, you know, 0:10:07.160 --> 0:10:08.920 we wrote a piece saying the S and P five 0:10:09.000 --> 0:10:10.560 hundred doesn't care who. 0:10:10.440 --> 0:10:11.160 The president is. 0:10:12.760 --> 0:10:15.520 It's almost like the US stock market. We call it 0:10:15.520 --> 0:10:18.000 the eighth Wonder of the World because it's just so relentless. 0:10:18.880 --> 0:10:22.640 It's almost like immune to any of this. And I 0:10:22.679 --> 0:10:26.160 think over the years, even if there has been drama 0:10:26.280 --> 0:10:29.320 and maybe a pullback, it goes right back up. And 0:10:29.400 --> 0:10:31.920 so we have seen no change in the flows from 0:10:31.960 --> 0:10:36.000 like last summer into fall, into the winter into this 0:10:36.200 --> 0:10:38.880 twenty twenty five. It's it's basically been a lot of 0:10:38.920 --> 0:10:41.640 people continue to buy what we call beta, the S 0:10:41.679 --> 0:10:44.839 and P five hundred, the bond ETFs, you know, the 0:10:44.880 --> 0:10:47.760 sixty forty people are just continuing to buy now on 0:10:47.800 --> 0:10:50.960 the fringes. There is some stuff that we see moving, like, 0:10:51.000 --> 0:10:54.680 for example, in the bond space, we do see people 0:10:54.920 --> 0:10:57.760 moving towards the shorter end of the curve, more towards 0:10:57.840 --> 0:11:00.880 like a money market type deal, and I think that's 0:11:00.880 --> 0:11:05.120 a little protection. We've seen obviously money go into the 0:11:05.120 --> 0:11:08.839 bitcoin ets and some into gold. There's some thought that 0:11:08.840 --> 0:11:13.080 that is, you know, an inflation hedge. And then the 0:11:13.120 --> 0:11:16.840 stock market. Sometimes we'll see some flow like try to 0:11:16.880 --> 0:11:19.439 bet on small caps having a rebound or. 0:11:19.440 --> 0:11:21.960 Europe, but those are usually short lived. 0:11:22.000 --> 0:11:24.800 So you do sometimes see people trying to bet on 0:11:24.840 --> 0:11:27.400 some kind of a rotation or regime change. 0:11:27.920 --> 0:11:29.439 So again they're on the outskirts. 0:11:29.440 --> 0:11:31.960 We see bets being made, but for the most part, 0:11:32.000 --> 0:11:36.120 the sort of mainstream flow of money continues to buy 0:11:36.840 --> 0:11:41.120 us stocks, you know, at a breakneck pace, and it's 0:11:41.160 --> 0:11:43.160 going to take more than just like a you know, 0:11:43.600 --> 0:11:48.040 a scary tariff headline to get these ETF investors to 0:11:48.040 --> 0:11:53.240 to change direction. And you know, and why would they. 0:11:53.240 --> 0:11:56.240 They've they've almost been conditioned like Pavolovian dogs to just 0:11:56.480 --> 0:11:58.360 keep buying because it's worked out. 0:11:58.920 --> 0:11:59.880 If you've ever read a. 0:12:00.000 --> 0:12:02.760 Scary headline pulled your money out put in cash. 0:12:02.800 --> 0:12:05.760 You're basically filled with a ton of regret. 0:12:06.440 --> 0:12:09.520 And so this is where we're at. Why I think 0:12:09.559 --> 0:12:12.200 that it will take like a black Swan event in 0:12:12.240 --> 0:12:15.600 my opinion, to really see anything shift, something like the 0:12:15.640 --> 0:12:19.280 COVID something we're not not tariffs, you know, not a 0:12:19.400 --> 0:12:22.520 crazy tweet Like it has to be something like really 0:12:22.600 --> 0:12:25.760 major that nobody's even looking at in my opinion, for 0:12:26.360 --> 0:12:30.080 the general blob of money to like stop investing or 0:12:30.080 --> 0:12:31.000 to move out of stocks. 0:12:31.240 --> 0:12:33.880 Really appreciate this. Eric, thanks again for coming on with us. 0:12:34.200 --> 0:12:35.120 You got it anytime. 0:12:35.400 --> 0:12:40.040 That's Eric Baluchunis ETF, analyst for Bloomberg Intelligence, and coming 0:12:40.120 --> 0:12:43.000 up next on the special holiday edition of Bloomberg Daybreak, 0:12:43.000 --> 0:12:44.800 we're going to take a look at the oil market 0:12:44.880 --> 0:12:48.280 how that may be shifting under the new administration. We'll 0:12:48.320 --> 0:12:51.600 be speaking with Stephen Schork, president of the Short Group. 0:12:51.960 --> 0:12:54.839 It's twenty minutes past the hour. I'm Nathan Hager, and 0:12:54.920 --> 0:13:03.840 this is Bloomberg. Welcome back to this special holiday edition 0:13:03.920 --> 0:13:07.920 of Bloomberg Daybreak. US markets are closed for President's Day. 0:13:08.160 --> 0:13:10.120 I'm Nathan Hager, and we want to take a look 0:13:10.160 --> 0:13:14.000 now at the oil market, commodities across the board have 0:13:14.120 --> 0:13:17.760 been rocked with President Trump threatening and in some cases 0:13:17.880 --> 0:13:22.480 imposing tariffs on friend and foe alike. Here to give 0:13:22.520 --> 0:13:24.880 us a sense of the energy outlook as we make 0:13:24.960 --> 0:13:28.520 sense of this new tougher trade policy is Stephen Shork, 0:13:28.760 --> 0:13:32.480 president of the energy analysis firm the Short Group. Thanks 0:13:32.520 --> 0:13:35.320 again for being with us, Steven, And we have seen 0:13:35.360 --> 0:13:38.480 oil prices really take a hit on the tariffs that 0:13:38.520 --> 0:13:41.160 President Trump is already imposed and the threat of more 0:13:41.200 --> 0:13:45.000 to come. How do tougher trade policies affect your outlook 0:13:45.040 --> 0:13:45.800 for the months to come? 0:13:46.040 --> 0:13:48.600 Yeah, absolutely, Nathan. So what I like to do, of course, 0:13:48.720 --> 0:13:51.080 is always look at the market's term structure or its 0:13:51.200 --> 0:13:55.120 forward curve. And with all of the rhetoric and some 0:13:55.200 --> 0:13:58.319 of it has made good on with regard to the tariffs, 0:13:58.440 --> 0:14:00.240 when it comes to oil, we have to think about 0:14:00.240 --> 0:14:03.920 this logically. A lot of this is bluster. The United States, 0:14:03.960 --> 0:14:07.800 and specifically our refineries in the Upper Midwestern the Chicago 0:14:07.840 --> 0:14:12.720 market area, are wholly dependent on importing crude oil from Canada. 0:14:13.000 --> 0:14:17.800 These refiners are geared specifically to refine Canadian heavy crude oil. 0:14:18.320 --> 0:14:21.320 So with regards to the terrifs, when it comes to oil. 0:14:22.120 --> 0:14:25.480 I think it's a bit of brinksmanship so far. I 0:14:25.480 --> 0:14:28.960 think the administration has blinked on that matter, because the 0:14:29.040 --> 0:14:31.600 last thing the administration wants to do, of course, is 0:14:32.040 --> 0:14:35.200 drive up oil prices, which consumers will begin to feel 0:14:35.240 --> 0:14:38.760 immediately at the pump. So that said, when we look 0:14:38.800 --> 0:14:41.440 at the term structure, the market has been fairly stable 0:14:42.000 --> 0:14:45.080 non ex WTI has been ranged bound in between about 0:14:45.120 --> 0:14:49.080 seventy dollars and seventy five dollars a barrel for this quarter, 0:14:49.480 --> 0:14:52.680 which is in perfect agreement with our modeling that we 0:14:52.800 --> 0:14:55.520 came out. We entered this year with oil at about 0:14:55.520 --> 0:14:59.240 sixty nine dollars fifty cents. The midpoint for this quarter 0:14:59.320 --> 0:15:01.560 based on our model is about seventy one dollars and 0:15:01.600 --> 0:15:04.240 sixty cents. And as they said, the market has pretty 0:15:04.280 --> 0:15:06.800 much been ranged bound in between seventy and seventy five. 0:15:07.280 --> 0:15:11.320 Most importantly, a recent survey put out by the Dallas 0:15:11.360 --> 0:15:15.520 Federal Reserve to oil executives in the oil patch down 0:15:15.560 --> 0:15:19.160 in Texas, Oklahoma, Kansas, and so forth, or asked what 0:15:19.200 --> 0:15:22.640 they were planning oil prices based on their capital spending 0:15:22.840 --> 0:15:24.680 and as long as the oil prices hold in that 0:15:24.800 --> 0:15:30.320 seventy seventy five dollars range. Not coincidentally, the industry will 0:15:30.360 --> 0:15:33.960 continue to invest. So from this standpoint, the teriffs the 0:15:34.120 --> 0:15:37.120 talk their rhetoric, Yes, it makes a lot of noise, 0:15:37.400 --> 0:15:41.320 but when you look at the relatively lack of volatility, 0:15:41.440 --> 0:15:43.200 So we're looking at a market when we look at 0:15:43.200 --> 0:15:45.840 whether it's range bound, there's a lack of volatility. The 0:15:45.880 --> 0:15:48.400 market has been relatively stable as far as looking at 0:15:48.440 --> 0:15:51.600 the spreads, the spreads are indicating. That is to say, 0:15:51.800 --> 0:15:54.200 as we look at prices along the forward curve, the 0:15:54.320 --> 0:15:58.840 market is well balanced. No one is clamoring for product. 0:15:59.040 --> 0:16:02.440 So do you see any factor breaking the oil market 0:16:02.560 --> 0:16:04.760 out of this range, and if so, is it going 0:16:04.800 --> 0:16:06.320 to go up or is it going to go down? 0:16:07.120 --> 0:16:10.880 I think the risk is certainly to the downside. Of course, 0:16:11.120 --> 0:16:15.520 the big two geopolitical headlines out there are sanctions and 0:16:15.840 --> 0:16:20.200 a harder stamps on Russian and Iranian oil, and of 0:16:20.200 --> 0:16:24.360 course that is a potential uptick that would propel oil 0:16:24.400 --> 0:16:27.640 prices higher. But again, looking at the forward curve, in 0:16:27.680 --> 0:16:30.800 the turn structure in oil markets all around the world, 0:16:31.440 --> 0:16:35.160 traders are placing a maximum of minimum concern on these 0:16:35.200 --> 0:16:38.680 geopolitical events. So just as we've seen over the past 0:16:38.720 --> 0:16:41.760 two years when more in the Middle East broke out, 0:16:42.040 --> 0:16:46.080 it's less about supply more about demand. So the supply 0:16:46.200 --> 0:16:49.000 issues will always okay, supplies out of the Middle East 0:16:49.040 --> 0:16:54.040 transiting through the Red Sea with all the attacks and shipping, 0:16:54.440 --> 0:16:57.480 that's a supply issue, but it had not impact prices. 0:16:57.720 --> 0:17:00.720 So the concern now is more of global economic growth. 0:17:00.960 --> 0:17:02.800 And when we say that when it comes to oil, 0:17:02.880 --> 0:17:05.800 of course we're talking about China. But we've been waiting 0:17:05.800 --> 0:17:08.000 for bide when it comes to China for the past 0:17:08.040 --> 0:17:10.640 three years with this demand to hit, it has not hit. 0:17:10.920 --> 0:17:12.760 I don't think it's going to hit in this year. 0:17:13.080 --> 0:17:15.520 So certainly, if there is a risk of breaks out 0:17:15.560 --> 0:17:18.399 of that range, Nathan, it is certainly oil prices below 0:17:18.480 --> 0:17:21.480 seventy dollars a barrel rather than oil prices above eighty 0:17:21.520 --> 0:17:24.160 dollars a barrel through the first at least six months 0:17:24.160 --> 0:17:24.640 of this year. 0:17:24.920 --> 0:17:28.600 To your point about waiting for that demand shift to 0:17:28.720 --> 0:17:32.000 change coming out of China, it gets us into the 0:17:32.040 --> 0:17:35.639 next OPEC Plus meeting and the decision on whether to 0:17:35.680 --> 0:17:40.200 continue with the delayed production increases from the oil cartel. 0:17:40.240 --> 0:17:42.159 What's your expectation there. 0:17:42.880 --> 0:17:46.360 Yeah, exactly, so there's speculation, of course, if we're tougher 0:17:46.359 --> 0:17:50.600 on Russia, we're tougher in Iran the other OPEC members, 0:17:50.720 --> 0:17:53.919 primarily the Arab oil producers who don't have a lot 0:17:53.960 --> 0:17:56.520 of love loss with between the Arabs and the Iranians, 0:17:56.680 --> 0:18:00.679 that Saudi Arabia and so forth will increase production. But 0:18:01.000 --> 0:18:03.600 that is just trying to play geopolitics. 0:18:03.600 --> 0:18:04.160 One oh one. 0:18:04.640 --> 0:18:06.840 What we have to look at again is the spread, 0:18:06.880 --> 0:18:09.760 the spread between Brent Dubai, the Dubai spreads, the Middle 0:18:09.800 --> 0:18:13.879 East spreads, and what we're indicating here is once again 0:18:14.000 --> 0:18:19.000 a market that is relatively stable on a global standpoint. 0:18:19.359 --> 0:18:22.359 So once again OPEK is going to look rather than 0:18:22.480 --> 0:18:25.159 look at the potential, they're going to look at what 0:18:25.200 --> 0:18:28.680 the market's telling them. Their analysts are excellent at looking 0:18:28.720 --> 0:18:31.639 at this. So I would suspect there's a fifty to 0:18:31.640 --> 0:18:34.840 fifty chance that they'll they'll maintain the status quo i e. 0:18:35.160 --> 0:18:40.600 They'll kick the production, you know, the quota adherents, they'll 0:18:40.880 --> 0:18:43.159 kick that can down the road until their next meeting 0:18:43.400 --> 0:18:46.840 unless they see something that happens in the spreads. And 0:18:47.000 --> 0:18:49.639 right now that the spreads are telling OPEK, they're telling 0:18:49.720 --> 0:18:53.000 traders that the market is in balance at this point, 0:18:53.080 --> 0:18:56.960 regardless of all these known unknowns of geopolitical events, be 0:18:57.080 --> 0:19:03.160 it Iran Russia, the war between in Gaza between Iran 0:19:03.240 --> 0:19:07.399 and Israel basically, and certainly the situation in Ukraine. So 0:19:07.480 --> 0:19:11.119 until we see something hard tangible to trade on the 0:19:11.200 --> 0:19:14.080 spreads is telling us no OPA will maintain the status quo. 0:19:14.480 --> 0:19:17.480 We're speaking with Stephen Schork, president of the Short Group, 0:19:17.640 --> 0:19:22.440 energy analyst with us on this special edition of Bloomberg Daybreak. 0:19:22.600 --> 0:19:24.359 I know you said we should look past the noise 0:19:24.359 --> 0:19:26.520 when it comes to the oil market, Stephen, but if 0:19:26.520 --> 0:19:29.720 you'll indulge me for a minute, we have heard noise, 0:19:29.760 --> 0:19:32.040 if you want to call it that, from President Trump 0:19:32.040 --> 0:19:35.440 on the campaign trail, now in office saying drill, baby, drill. 0:19:35.520 --> 0:19:40.119 He wants to boost energy production in this country. Is 0:19:40.119 --> 0:19:42.199 that something you're thinking about when it comes to the 0:19:42.200 --> 0:19:43.080 outlook for crud? 0:19:44.200 --> 0:19:48.320 Of course, and that really hammers home the point of 0:19:48.359 --> 0:19:51.440 the rhetoric. So yes, the president, we'll want to talk 0:19:51.480 --> 0:19:56.720 about drill, about baby drill, But guess what we are drilling, baby, 0:19:56.800 --> 0:20:01.160 and we are drilling a lot of oil at this point. 0:20:01.480 --> 0:20:04.439 So again i'll reference that the response is to a 0:20:04.520 --> 0:20:06.879 survey to E and T executives put forth by the 0:20:06.960 --> 0:20:12.000 Dallas said, and the response that is, the industry response 0:20:12.160 --> 0:20:15.400 is relatively lukewarm to the idea of drill baby drill. 0:20:15.680 --> 0:20:19.000 Why because we're already drilling more oil than we ever had, 0:20:19.280 --> 0:20:21.920 and we are by far drilling the most oil than 0:20:21.960 --> 0:20:24.320 any country in the world. So there really is a 0:20:24.520 --> 0:20:26.639 lot of neat left on that bone for us to 0:20:26.720 --> 0:20:30.320 drill even more so, according to those responses, you only 0:20:30.359 --> 0:20:34.440 have fourteen percent of the responses come from these executives 0:20:34.560 --> 0:20:39.000 that said they planned to increase capital spending significantly. The 0:20:39.040 --> 0:20:43.080 majority of the executives at these current prices are comfortable 0:20:43.119 --> 0:20:46.120 with drilling at current rates, i e. There is no 0:20:46.200 --> 0:20:48.760 need the market is telling them. They're not getting any 0:20:48.760 --> 0:20:52.080 signal from the market to drill. So yes, President Trump 0:20:52.280 --> 0:20:55.960 or President ex Monacle and the President Tariff will certainly 0:20:56.840 --> 0:20:59.480 beat the drums about drill baby drill, But the bottom 0:20:59.560 --> 0:21:01.960 line is we're already drilling and there's just not that 0:21:02.080 --> 0:21:05.439 much more at this juncture. Given this price a range, 0:21:05.480 --> 0:21:07.520 for us to drill even more, it does not make 0:21:07.560 --> 0:21:10.359 any economic sense for any producer out there. 0:21:10.560 --> 0:21:13.399 We've been talking about the price range for crewe the 0:21:13.520 --> 0:21:17.159 term structure. How does all this feed into where the 0:21:17.200 --> 0:21:20.760 rubber literally meets the road in terms of gas prices 0:21:20.800 --> 0:21:23.800 that we should expect to pay as we head into 0:21:23.800 --> 0:21:25.160 the spring and summer months. 0:21:25.680 --> 0:21:29.639 Yeah, absolutely so. Right now, accordingly surveyed by TRIPLEA, the 0:21:29.760 --> 0:21:33.680 national average is about three fifteen cents a gallon, slightly 0:21:33.760 --> 0:21:36.679 higher three dollars and twenty cents in the metro New 0:21:36.720 --> 0:21:41.920 York City area. But that three fifteen cents is no 0:21:42.400 --> 0:21:44.159 I take that back. That was three thousand and fifteen 0:21:44.160 --> 0:21:47.840 cents today compared to three dollars twenty cents a year ago. 0:21:48.000 --> 0:21:52.000 So so basically we're on parts a year ago adjusted 0:21:52.000 --> 0:21:54.960 for inflation, three and fifty cents, as we can all imagine, 0:21:55.359 --> 0:21:59.000 is a very cheap price. With the oil remaining stable 0:21:59.280 --> 0:22:02.840 a low volume utility, we can maintain that status pro 0:22:03.160 --> 0:22:06.400 But let's keep in mind we are in February. Once 0:22:06.440 --> 0:22:09.399 we get into March April, may we start burning in 0:22:09.480 --> 0:22:12.119 our cars a different type or boiling, I should say, 0:22:12.160 --> 0:22:15.520 a different type of gasoline, a summer grade gasoline which 0:22:15.680 --> 0:22:19.560 is more expensive to blend and market and transport and 0:22:19.600 --> 0:22:22.879 so forth. So we will see a natural increase in 0:22:22.920 --> 0:22:26.480 gasoline prices. Typically that would be about between fifteen and 0:22:26.560 --> 0:22:31.159 twenty cents between winter gasoline and summer gasoline. So, giving 0:22:31.480 --> 0:22:34.399 the current price environment, that range amount of seventy seventy 0:22:34.400 --> 0:22:37.320 five at three thousand and fifteen cents. By the time 0:22:37.359 --> 0:22:40.000 Memorial Day to fourth of July rolls around and we're 0:22:40.000 --> 0:22:43.640 all going out the beach up to the Poconos, gasoline 0:22:43.640 --> 0:22:46.840 prices would naturally at this range b probably three dollars 0:22:46.920 --> 0:22:49.399 and thirty cents. Three dollars and thirty five cents in 0:22:49.440 --> 0:22:50.440 the current environment. 0:22:50.720 --> 0:22:54.639 Okay, Now where the environment is right now, and with 0:22:55.160 --> 0:22:59.480 crude prices in this range, how does that affect the 0:22:59.640 --> 0:23:03.520 energy transition? I mean, we've seen the talk of the 0:23:03.920 --> 0:23:07.240 end of the electric vehicle mandates. There's a new administration 0:23:07.400 --> 0:23:11.640 that is very bullish on crude. Where do you see 0:23:11.640 --> 0:23:14.040 the energy transition going forward? 0:23:15.200 --> 0:23:17.920 Basically where I saw going backwards. I think the whole 0:23:18.119 --> 0:23:21.280 concept of the energy transition it made great, you know, 0:23:21.320 --> 0:23:25.159 it was great for PowerPoint presentations in global economic forms 0:23:25.200 --> 0:23:28.720 and so forth, But the industry understood that demand for 0:23:28.800 --> 0:23:32.919 fossil fuels was not moving anywhere, that fossil fuel demand 0:23:32.920 --> 0:23:35.760 will continue to grow India just came out and said 0:23:35.760 --> 0:23:39.160 they expect fossils field growth to continue until twenty fifty. 0:23:39.640 --> 0:23:43.719 The same goes for China and so forth. So what 0:23:43.760 --> 0:23:46.680 we're seeing now here is more of an economic even 0:23:46.720 --> 0:23:52.000 playing field where these mandates. If there's economically viable for 0:23:52.320 --> 0:23:55.480 full eds or for any of the energy transitions, then 0:23:55.520 --> 0:23:58.000 we wouldn't need the government, that is, wouldn't need to 0:23:58.240 --> 0:24:01.600 underwrite it. So what we're seeing now here is a 0:24:01.640 --> 0:24:05.879 transition that is more of an all inclusive And I 0:24:05.880 --> 0:24:11.040 always go back to President Obama's twenty twelve re election platform, 0:24:11.400 --> 0:24:15.280 where he recognized that there was a need, a growing 0:24:15.280 --> 0:24:19.199 need for renewables, of course, but equally he also and 0:24:19.240 --> 0:24:22.040 I encourage our listeners to go back and reread his 0:24:22.119 --> 0:24:25.800 twenty twelve platform because it also embraced nuclear, it did 0:24:25.920 --> 0:24:29.480 embrace clean coal, it embraced natural gas and fossil fuels. 0:24:29.640 --> 0:24:33.159 So we're going back to this. Any transition is moving 0:24:33.160 --> 0:24:36.000 more from a binary transition, that is to say, I 0:24:36.119 --> 0:24:40.840 have to kill all of my dispatchable energy and now 0:24:40.840 --> 0:24:44.439 I have to have it all replaced by intermittent weather 0:24:44.520 --> 0:24:48.520 related BTUs. We're moving away from that, and we're moving 0:24:48.520 --> 0:24:53.160 more towards an all inclusive policy where renewables, of course 0:24:53.240 --> 0:24:56.040 will play a role in this, but so too will 0:24:56.160 --> 0:24:59.600 natural gas, nuclear energy, and other fossil fuels. And it 0:24:59.600 --> 0:25:02.560 will be in all of the above approach to our 0:25:02.680 --> 0:25:05.040 energy needs going forward for at least the next four years, 0:25:05.040 --> 0:25:08.199 as opposed to the zero sum game where we have 0:25:08.280 --> 0:25:11.560 to kill fossil fuels and we can only use renewables, 0:25:11.680 --> 0:25:15.640 which was always has been known to be untenable. We've 0:25:15.760 --> 0:25:19.680 just we're now seeing the quipout part out loud. 0:25:20.280 --> 0:25:22.920 Really appreciate this, Stephen, thanks again for coming on with us. 0:25:23.520 --> 0:25:25.120 Absolutely always enjoy being back here. 0:25:25.520 --> 0:25:29.240 That's Stephen Schork, president of the Short Group. And straight ahead, 0:25:29.240 --> 0:25:32.320 we'll look ahead to earnings from Walmart this week as 0:25:32.359 --> 0:25:36.680 this special edition of Bloomberg Daybreak continues. It's thirty eight 0:25:36.720 --> 0:25:40.840 minutes past the hour. I'm Nathan Hager, and this is Bloomberg. 0:25:47.960 --> 0:25:51.120 Welcome back to the special holiday edition of Bloomberg Daybreak. 0:25:51.200 --> 0:25:54.679 US markets are closed for Presidents Day. I'm Nathan Hager 0:25:54.760 --> 0:25:57.080 closing out this hour with a look ahead to one 0:25:57.119 --> 0:25:59.680 of the big earning stories of the week coming from 0:25:59.680 --> 0:26:03.919 one of the world's biggest retailers, Walmart reports results from 0:26:03.960 --> 0:26:07.560 the holiday quarter this Thursday. But what can we expect 0:26:07.680 --> 0:26:11.720 from the outlook for this retail giant with so much 0:26:11.800 --> 0:26:15.480 uncertainty around the economy, not to mention trade policy. Here 0:26:15.520 --> 0:26:18.680 with some insights for us is Aroune Sundorum, Senior vice 0:26:18.720 --> 0:26:23.040 president for Equity Research at CFR. Thanks for being with us, Aron. 0:26:23.880 --> 0:26:26.320 We'll look at at the chart right now Walmart stock. 0:26:26.920 --> 0:26:30.160 It's up more than ten percent year to date. Can 0:26:30.200 --> 0:26:33.480 we expect that kind of bowl run to continue when 0:26:33.600 --> 0:26:36.000 the retail giant posts those earnings this week? 0:26:36.200 --> 0:26:39.760 Walmart tends to guide conservatively to start the year, so 0:26:40.400 --> 0:26:42.679 don't be surprised if you do see a softer than 0:26:42.760 --> 0:26:47.080 expected outlook. But I think investors typically look at the 0:26:47.119 --> 0:26:50.199 outlook with the grain of salt because Walmart tends to, 0:26:50.280 --> 0:26:52.480 at least over the last few years, they have raised 0:26:52.480 --> 0:26:55.520 their outlook as the year progresses. So expect to be 0:26:55.600 --> 0:26:57.680 on top of bottom line potentially a weaker than put 0:26:57.720 --> 0:26:59.440 the outlook, But you know, I don't think that should 0:26:59.480 --> 0:27:01.240 send tend the stock that much lower. 0:27:01.840 --> 0:27:03.639 What's going to drive the beat? Do you think? Is 0:27:03.640 --> 0:27:06.600 it just going to be about the bounce that we 0:27:06.760 --> 0:27:09.879 tend to see for retail around the holidays. 0:27:10.119 --> 0:27:12.720 Well, yeah, I mean for Walmart. Yeah, their in their 0:27:12.840 --> 0:27:16.000 US business. Yeah, the strong holiday season should drive a 0:27:16.040 --> 0:27:18.399 beat to the top line when they report a Q 0:27:18.480 --> 0:27:21.560 three result. They even know that back then that early 0:27:21.600 --> 0:27:24.199 results for their holiday season was encouraging, and we do 0:27:24.359 --> 0:27:26.879 know that the overall Hollay season was pretty strong. And 0:27:26.880 --> 0:27:29.280 I think one thing we often overlook with Walmart too 0:27:29.320 --> 0:27:31.600 is that they have a very large international business that 0:27:31.640 --> 0:27:33.520 has been growing in a high single digit percentage range 0:27:33.560 --> 0:27:36.720 over the last few quarters. They're doing well and regions 0:27:36.760 --> 0:27:40.400 like Mexico, China, Canada, all those regions are doing pretty well. 0:27:40.680 --> 0:27:43.359 And then lastly, you know, Walmart also has their club business, 0:27:43.400 --> 0:27:46.119 sam Club, and that's also been performing really well. We 0:27:46.119 --> 0:27:48.360 talk a lot about Costco and how well Costco is doing, 0:27:48.400 --> 0:27:50.639 but sam Club, you know, it seems to be a 0:27:50.680 --> 0:27:53.439 formidable competitor to Costco and it's also growing at a 0:27:53.560 --> 0:27:55.320 mid to high single digit percentage range. 0:27:55.520 --> 0:27:58.520 Interesting to hear you single out China, Canada, and Mexico 0:27:58.640 --> 0:28:01.119 as far as growth drivers in internationally. Those are the 0:28:01.160 --> 0:28:04.480 three countries that have been targets of tariff threats from 0:28:05.000 --> 0:28:08.360 President Trump. How could that affect the outlook if we 0:28:08.600 --> 0:28:11.359 start to see trade uncertainty creeping into these earnings. 0:28:12.000 --> 0:28:14.560 Yeah, so that's that's another reason why I do think 0:28:14.600 --> 0:28:18.680 the outlook could be more conservative than usual. We saw 0:28:18.680 --> 0:28:22.760 that with with Amazon when Amazon reported recently that there 0:28:22.840 --> 0:28:25.320 is more uncertainty this year than than previous years. We 0:28:25.400 --> 0:28:29.040 have potential tariffs, we have inflation that looks like looks 0:28:29.040 --> 0:28:32.879 like it's going to accelerate this year. We still have 0:28:32.960 --> 0:28:35.919 high interest rates and and and all that kind of 0:28:35.960 --> 0:28:39.640 clouds and already pretty cloudy outlook. So I do think 0:28:39.680 --> 0:28:42.959 we'll see, you know, a conservative outlook in that regard. 0:28:43.000 --> 0:28:46.640 But regarding its international businesses, although they're a global company, 0:28:46.760 --> 0:28:49.240 they do have pretty like localized supply chains. A lot 0:28:49.240 --> 0:28:53.160 of what they uh supply and produce and sell, a 0:28:53.160 --> 0:28:56.480 lot of it is located domestically. So yeah, I mean, yeah, 0:28:56.480 --> 0:28:59.080 they're going to face tariff. If there are tariffs, it's 0:28:59.160 --> 0:29:01.440 clearly going to be a win for Walmart. But I 0:29:01.520 --> 0:29:03.920 think they can they'll be able to mitigate that headwin. 0:29:04.120 --> 0:29:06.240 And again, this is not their first rodeo with tariffs. 0:29:06.280 --> 0:29:09.080 Walmart experienced the tariff the trade war with China back 0:29:09.080 --> 0:29:12.480 in twenty eighteen twenty nineteen, So I think generally retailers 0:29:12.480 --> 0:29:15.840 are better prepared for tariffs this time around, So. 0:29:15.920 --> 0:29:18.960 You don't expect to see much of a shift in 0:29:19.320 --> 0:29:22.720 the supply chain flows for Walmart, even if we do 0:29:23.040 --> 0:29:28.200 see even more aggressive tariffs than the President has telegraphed. 0:29:28.440 --> 0:29:31.280 Yeah, so I think from the first trade war with 0:29:31.360 --> 0:29:34.520 China back in twenty eighteen twenty nineteen, since then, all 0:29:34.600 --> 0:29:37.760 retailers have diversified their supply chain a bit more, and 0:29:37.880 --> 0:29:40.600 a lot of them have moved out of China, went 0:29:40.640 --> 0:29:44.120 to regions like you know, Vietnam, Cambodia, India, places like that, 0:29:44.480 --> 0:29:47.200 and so I think generally we're seeing a much more 0:29:47.240 --> 0:29:48.680 diversified supply chain. 0:29:48.800 --> 0:29:52.200 So that does help reduce tariff risks. 0:29:52.240 --> 0:29:55.040 And Walmart US about two thirds of the items of 0:29:55.120 --> 0:29:58.840 cells in the US are made, grown, or assembled domestically 0:29:58.840 --> 0:30:00.520 in the US. That is a lot, I mean a 0:30:00.600 --> 0:30:03.040 large percentage of of their products. So there's only about 0:30:03.040 --> 0:30:06.800 one third of their goods that are imported, and a 0:30:06.840 --> 0:30:10.680 lot of that is in China. So I think because 0:30:10.720 --> 0:30:13.600 Walmart is predominantly a food retailer, I think they're better 0:30:13.880 --> 0:30:15.840 and and a lot of food products are you know, 0:30:16.320 --> 0:30:20.440 domestically produced. I think they face less care risks than 0:30:20.720 --> 0:30:22.880 you know, general merchandise retailers. To retail is like a 0:30:22.880 --> 0:30:26.160 target for example, that UH sell predominantly general merchandise items, 0:30:26.200 --> 0:30:28.320 a lot, a lot more of those goods are imported 0:30:28.560 --> 0:30:29.320 from other countries. 0:30:29.480 --> 0:30:32.160 So it was curious whether we could see something of 0:30:32.200 --> 0:30:35.480 a of a trade impact on food when you think 0:30:35.520 --> 0:30:40.239 about Canada and Mexico being you know, agriculture suppliers to 0:30:40.280 --> 0:30:43.800 some extent into the US. Could could that be a 0:30:43.840 --> 0:30:44.880 headwind for Walmart. 0:30:45.240 --> 0:30:49.280 Yeah, so yeah, there's potential places in food with tariffs especially, 0:30:49.280 --> 0:30:52.880 I think a lot more agricultural commodities, things like fruits 0:30:52.920 --> 0:30:56.880 and vegetables that we often import from, you know, places 0:30:56.880 --> 0:31:01.560 like Canada and Mexico. So yeah, that's an area where 0:31:01.880 --> 0:31:04.280 I mean, we're watching closely and we could we could 0:31:04.320 --> 0:31:07.240 see inflation accelerate in a lot of those fresh categories. 0:31:07.320 --> 0:31:10.360 Ian Walmart's still the leader in price, and I think 0:31:10.480 --> 0:31:13.760 they typically have more levers than others to absorb some 0:31:13.800 --> 0:31:16.520 of these cost increases. But then of the day, there's 0:31:16.520 --> 0:31:18.800 only so much that they can absorb, and anything incremental 0:31:18.800 --> 0:31:21.720 that they can't absorb will likely be passed on, passed on, 0:31:21.760 --> 0:31:24.240 to the consumer. But again, you know, Walmart being the 0:31:24.280 --> 0:31:27.080 value retailer, they tend to have, you know, the lowest 0:31:27.080 --> 0:31:29.760 prices in town. And yeah, that's why I think Walmart 0:31:29.800 --> 0:31:33.160 typically does well in inflationary environments because they can provide 0:31:33.160 --> 0:31:35.560 that value that you know, other retailers, you know, can't 0:31:35.600 --> 0:31:36.520 necessarily do the same. 0:31:36.680 --> 0:31:39.560 We're speaking to Aroun Sundram, Senior vice president for Equity 0:31:39.600 --> 0:31:43.560 Research at CFR looking ahead to those Walmart earnings coming 0:31:43.640 --> 0:31:46.720 up later this week. Ahead of these earnings are and 0:31:46.760 --> 0:31:51.640 we've heard from companies like McDonald's talking about pressures that 0:31:51.680 --> 0:31:55.160 they see on the low end consumer. And we've seen 0:31:55.200 --> 0:31:59.000 this phenomenon lately, as inflation is stayed elevated, a lot 0:31:59.000 --> 0:32:02.160 of higher end consumers have been shopping for value at 0:32:02.200 --> 0:32:04.720 places like Walmart. How do you see that feeding through 0:32:04.760 --> 0:32:06.760 potentially into what we get this way. 0:32:07.120 --> 0:32:09.800 Yeah, that's that's been a theme for the past year 0:32:09.880 --> 0:32:11.560 or two, and I think that's a thing that's going 0:32:11.600 --> 0:32:14.480 to continue in twenty twenty five. Yeah, clearly the lower 0:32:14.480 --> 0:32:18.200 income consumer is feeling a bit more stress right now. 0:32:18.240 --> 0:32:21.120 And you would think that, you know, Walmart, you know, 0:32:21.320 --> 0:32:23.040 you think this would be hurting Walmart. They wouldn't be 0:32:23.040 --> 0:32:25.320 seeing these strong results, but I think they've been able 0:32:25.320 --> 0:32:28.760 to offset that by bringing in incremental middle to upper 0:32:28.800 --> 0:32:31.520 income consumers. And I think one of the reasons they've 0:32:31.520 --> 0:32:33.600 been able to do that is because of the new 0:32:33.640 --> 0:32:37.360 subscription model, Walmart Plus. Walmart Plus is a direct competitor 0:32:37.400 --> 0:32:40.800 to Amazon Prime. You get fast, free delivery on groceries, 0:32:40.840 --> 0:32:43.760 and I think that Walmart Plus business has done really well. 0:32:43.920 --> 0:32:47.720 And they don't disclose the exact number of members that 0:32:47.720 --> 0:32:50.600 are signed up, but from from our channel checks, it 0:32:50.840 --> 0:32:53.239 seems that it's growing at a pretty good rate. I mean, 0:32:53.280 --> 0:32:55.520 even Walmart's e commerce business, it's growing out about twenty 0:32:55.520 --> 0:32:58.080 percent clip year every year. I think a lot of 0:32:58.080 --> 0:33:00.600 that is because they've been able to bring in more 0:33:00.600 --> 0:33:03.200 of those Walmart Plus members in there. And I think 0:33:03.320 --> 0:33:06.560 Walmart Plus is great because that helps also retain those 0:33:06.600 --> 0:33:09.960 higher income households and even even when inflation does come down, 0:33:10.120 --> 0:33:11.920 you know, now you know once you once you lock 0:33:11.960 --> 0:33:15.479 these customers in, you drive more conversion. So that's why 0:33:15.520 --> 0:33:17.840 we're pretty optimistic here because Walmart's always been known for 0:33:18.000 --> 0:33:21.200 a value retailer, but they're actually now being better known 0:33:21.240 --> 0:33:23.920 for convenience that's usually a title that's held with Amazon 0:33:23.960 --> 0:33:26.320 as the leader in convenience, but now Walmart I think 0:33:26.360 --> 0:33:29.280 it's doing better in the convenience factor. And if you 0:33:29.320 --> 0:33:33.080 combine value and convenience, it's a pretty strong proposition for 0:33:33.120 --> 0:33:33.880 the for the consumer. 0:33:34.200 --> 0:33:36.400 Sort of fed into my next question thinking about how 0:33:36.400 --> 0:33:40.400 Walmart stacks up against Amazon with this this kind of 0:33:41.120 --> 0:33:47.560 subscription model, I guess, a consumer loyalty program. You might 0:33:47.600 --> 0:33:50.880 think of Amazon as as sort of a first mover 0:33:51.280 --> 0:33:55.920 with Amazon Prime. Is Walmart chipping away at Amazon Prime 0:33:55.960 --> 0:33:56.600 with its offering? 0:33:56.840 --> 0:33:57.040 Yeah? 0:33:57.080 --> 0:33:59.040 So Walmart, I mean Walmart Plus is is a direct 0:33:59.200 --> 0:34:02.440 It's a dire direct competition against Amazon Prime. But I 0:34:02.440 --> 0:34:06.720 think where Walmart has always had a stronghold is in grocery. 0:34:06.960 --> 0:34:09.839 That's an area where Amazon has struggled over the last 0:34:09.840 --> 0:34:13.040 several years. Amazon bought Whole Food several years ago. 0:34:13.120 --> 0:34:13.759 That business is. 0:34:13.719 --> 0:34:18.160 Doing well, but they're local business or their their own 0:34:18.200 --> 0:34:22.480 business called Amazon Fresh and hasn't performed up to expectations. 0:34:22.480 --> 0:34:25.480 And I think Amazon has really struggled in the grocery arena, 0:34:25.560 --> 0:34:29.880 which is where Walmart has always shined in grocery and perishables. 0:34:30.160 --> 0:34:32.239 So I think a lot of I mean from a 0:34:32.440 --> 0:34:35.520 stat I saw earlier, a large percentage of Walmart Plus 0:34:35.560 --> 0:34:38.880 subscribers are also Amazon Prime suscribers. So people tend to 0:34:38.920 --> 0:34:41.960 have both subscriptions, and they use Walmart Plus for groceries 0:34:41.960 --> 0:34:44.440 and they use Amazon Prime for everything else. And the 0:34:44.480 --> 0:34:46.520 Walmart Plus is a little bit cheaper. It's ninety eight 0:34:46.560 --> 0:34:50.160 dollars per year in the US. Amazon Prime is about 0:34:50.160 --> 0:34:52.680 one hundred and forty dollars per year in the US, 0:34:52.680 --> 0:34:54.600 And I think you get because of the different offerings 0:34:54.640 --> 0:34:57.439 you get, you tend to see consumers sign up for both. 0:34:58.320 --> 0:35:01.280 It's also curious to to get your thoughts on whether 0:35:01.680 --> 0:35:05.040 we could see wage pressures from Walmart coming down the 0:35:05.040 --> 0:35:08.160 linecause I'm thinking about Costco coming out where it's thirty 0:35:08.200 --> 0:35:11.600 dollars an hour wage for workers. There. Is that going 0:35:11.680 --> 0:35:15.799 to put pressure on Sam's Club, the subscription service the 0:35:15.800 --> 0:35:16.600 Walmart offers. 0:35:17.360 --> 0:35:21.399 Yeah, yeah, so I mean wage investments, wage pressures. That's 0:35:21.440 --> 0:35:24.880 been a headlind for several years now. Sam's Club they 0:35:24.880 --> 0:35:27.800 actually just recently announced a wage increase back in September 0:35:27.880 --> 0:35:30.480 of last year, but that's going to be another continued 0:35:30.520 --> 0:35:33.160 trend this year. We'll likely see more wage pressures this year. 0:35:34.120 --> 0:35:35.680 The good news is that, you know, when you have 0:35:35.719 --> 0:35:38.760 a company growing sales, you know, mid to high single digits, 0:35:39.400 --> 0:35:41.200 you can absorb some of those costume increases and it 0:35:41.239 --> 0:35:44.440 doesn't really impact the overall bottom line. But when you 0:35:44.440 --> 0:35:47.480 struggle to grow sales, like some other retailers there are 0:35:47.600 --> 0:35:51.439 right now, it's very difficult to also grow margins because 0:35:51.440 --> 0:35:53.799 of all these added wage pressures. So at the end 0:35:53.800 --> 0:35:55.919 of the day, I'm not overly worried about these wage 0:35:55.920 --> 0:35:58.799 investments as long as Walmart is able to grow their 0:35:58.840 --> 0:36:01.840 sales at amid single distrect percentage range, which we do 0:36:01.880 --> 0:36:04.120 expect will happen in twenty twenty five. 0:36:04.560 --> 0:36:07.160 In terms of Walmart's stock performance, it's hard to see 0:36:07.160 --> 0:36:09.960 a lot of pessimism around the stock, a lot of 0:36:10.000 --> 0:36:14.200 buy ratings on Walmart. Are there risks to that momentum? 0:36:14.480 --> 0:36:16.200 Yeah, I mean, I mean, the number one concern I 0:36:16.280 --> 0:36:19.279 get with investors on Walmart is not anything about the fundamentals. 0:36:19.280 --> 0:36:22.239 It's about how expensive the stock has gotten. From a 0:36:22.280 --> 0:36:27.000 four pe perspective. It's trading nearly forty times. 0:36:26.760 --> 0:36:27.960 Of a forward pe. 0:36:28.120 --> 0:36:31.040 Historically it's traded about twenty five times for p so 0:36:31.160 --> 0:36:35.920 a pretty significant premium. But you know. The one thing 0:36:35.920 --> 0:36:38.640 I'll note is that you know, Walmart shares used to 0:36:38.640 --> 0:36:40.200 be even more expensive back in the day, back in 0:36:40.239 --> 0:36:42.920 the late nineties early two thousands. When they're significantly expanding 0:36:42.960 --> 0:36:45.959 their super center's footprint, the share is traded above forty 0:36:46.000 --> 0:36:48.560 times forward earnings. And I think right now that the 0:36:48.600 --> 0:36:51.360 shares do deserve this this hefty premium because of all 0:36:51.440 --> 0:36:54.239 the things we talked about already, but also they're also 0:36:54.280 --> 0:36:57.640 growing their store footprint right now, they're growing more supercenters 0:36:57.719 --> 0:37:00.239 across the country. They're growing they're also growing SAMs Club 0:37:00.239 --> 0:37:02.839 locations across the country. They're targeting thirty new Sam's Club 0:37:02.880 --> 0:37:05.000 locations across the country. And then last thing, this is 0:37:05.000 --> 0:37:07.600 the most important thing I think, is that Walmart's business 0:37:07.640 --> 0:37:10.600 is diversifying. We talked about Walmart Plus and the subscription 0:37:10.640 --> 0:37:13.080 revenue they're getting from that. They're also generating a lot 0:37:13.080 --> 0:37:15.680 of advertising revenue as they grow out their e commerce market. 0:37:15.960 --> 0:37:18.719 Marketplace in advertising, as you know, is much higher market 0:37:18.719 --> 0:37:19.720 business than selling groceries. 0:37:19.719 --> 0:37:20.440 It's out of a store. 0:37:20.760 --> 0:37:23.640 So as as this advertising business continues to grow, I 0:37:23.680 --> 0:37:26.840 think you can see Walmart's overall margins continue to expand 0:37:27.080 --> 0:37:29.040 and when you have when when you're a retailer generating 0:37:29.080 --> 0:37:31.879 you know, six hundred billion dollars per year and nearly 0:37:31.920 --> 0:37:35.760 seven hundred billion dollars per year in revenues, every percent, 0:37:35.800 --> 0:37:39.640 every basis point of margin translate into into uh into 0:37:39.640 --> 0:37:42.480 a lot of profits. So that's what I'm pretty excited 0:37:42.480 --> 0:37:44.520 about is I think over the next few years, and 0:37:44.880 --> 0:37:49.520 Walmart has many levers to expand margins because of you 0:37:49.560 --> 0:37:52.000 know things we talked about, but because of their subscription revenue, 0:37:52.000 --> 0:37:55.080 their advertising revenue, they're growing their general merchandise sales. They're 0:37:55.080 --> 0:37:57.680 also introducing automation and robotics, and they're in their fulfillment 0:37:57.760 --> 0:38:00.000 centers and all of that they can translate into pretty 0:38:00.160 --> 0:38:02.359 operating marketing expansion over at least I think the next 0:38:02.400 --> 0:38:05.920 three years. And that's why I think the happy premium 0:38:05.960 --> 0:38:08.600 can hold. And I think there's still upside to the 0:38:08.640 --> 0:38:09.279 stock from here. 0:38:09.960 --> 0:38:12.640 Lots to consider as we wait those earnings from Walmart 0:38:13.080 --> 0:38:15.719 due out this Thursday. Thank you for this, Arun, again, 0:38:15.760 --> 0:38:16.799 great having you on with us. 0:38:17.239 --> 0:38:17.799 Yeah, thank you. 0:38:18.160 --> 0:38:22.680 That's Arun Sundram, senior equity research analyst at CFIRA. Want 0:38:22.680 --> 0:38:25.239 to deliver thanks as well to Stephen Shork of the 0:38:25.280 --> 0:38:29.080 Short Group and Eric Balchunis of Bloomberg Intelligence. Thanks to 0:38:29.120 --> 0:38:31.399 you as well for joining us on this special hour 0:38:31.400 --> 0:38:34.960 of Bloomberg day Break for this president. Stay, I'm Nathan Hager. 0:38:35.040 --> 0:38:38.680 Stay with us. Today's top stories and global business headlines 0:38:38.719 --> 0:38:40.399 are coming up right now.