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In this BFM podcast episode, the hosts interview Tony Nash, CEO of Complete Intelligence, who explains the sudden downturn in US markets and predicts a slowing rate of rise for the Nasdaq in 2024. Nash also discusses the potential outperformance of finance and banking sectors over cyclicals and forecasts a lackluster year for 2024.
Additionally, the segment covers developments from the UN Climate Change Conference, COP28, and its long-term impact on energy markets. Tony highlights the challenges faced by middle-income and emerging markets in transitioning to green technologies amidst fiscal constraints and higher interest rates. The discussion also touches on the disruptions in the Red Sea region’s supply chain and their potential economic impacts, as well as the positive revenue forecast and strong performance of Micron, a leading US memory chip maker.
Transcript:
BFM
For some thoughts on what’s moving international markets, we have on the line with us, Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks for joining us. Very quickly, can maybe you help us understand why US markets are down quite significantly this morning? I thought it was a Christmas rally all the way up to the end of the year. What explains the markets being in the red?
Tony Nash
The old Santa rally? Well, markets were doing great until about 1:30 Eastern time, and then they just fell off a cliff and we closed in the red. Even things like Nasdaq, up until about 1:30 PM, Nasdaq had been up six % for the month, so it was doing extremely well. Then things turned and I think there may be some whispers of an event coming or there’s fear that the Fed isn’t going to be as doveish as was said. I think possibly going into the break, people are really thinking about how much risk they want to have on over the holiday.
BFM
But what does that mean for, I guess, the end of the year performance? Especially if we look at the Nasdaq 100, it is up a whopping 41 % for the year. Are we going to see a repeat of this outperformance next year? Or do you think we’re at the zenith of the euphoria?
Tony Nash
Are we at the zenith? I don’t know. Certainly, the rate of rise will slow. I seriously doubt we’re going to see things fall off dramatically in, say, January. But just to give you an example, we forecast markets, as you know, and currencies and stuff. We had forecast a 5.65% rise in Nasdaq for December. Up until 1:30 today, it had risen 6%. We’re pretty good at forecasting that. Our average expectation for Nasdaq in 2024 is 14,746, which is a fall from now. I would expect we’ll start out Q1 fairly okay, but through the year, the appeal of Nasdaq is going to decline. As people accept that hire for longer is here to stay, which doesn’t mean rates are going to continue to rise, but they’re not going to fall for six cuts or whatever, 10 cuts that some people are saying.
BFM
Tony, it wasn’t solely growth stocks, which captured the limelight. Now, cyclical names like Carnival Cruisers and GE saw their share prices surge 117 and 86% respectively in 2023. Now, are investors likely to see more symmetric returns coming from growth and defensive companies next year?
Tony Nash
It’s unlikely, sadly. We saw companies expand margins with cost inflation as an excuse to justify price rises as incomes grew and government cash handouts accumulated. But we really saw that stuff stop in 2023, second quarter, third quarter with inflation abating. Now, inflation abating doesn’t mean prices falling. It just means that the rate of price rises is slowing. Pay rises are unlikely to continue and consumers will likely have to tighten their belts. As that happens, cyclicals will settle. Things like travel and tourism, things like GE will have to settle a bit. The returns really depend on your risk appetite. So where to look? I would say look at things like finance and banking, some natural resources like miners. I wouldn’t necessarily go directly in commodity prices, but I would look at some of those guys who process natural resources, those sorts of things.
BFM
Tony, overall, what’s your investment outlook and advice for 2024 when it comes to asset allocation then? Because bonds were very volatile this year. Is it going to continue next year? Equity surprisingly did much better despite the talk of a recession that has yet to materialize. What’s your recommendation?
Tony Nash
Yeah, I think if you look at the tenure, for example, I think it’s hard to see the tenure much higher than, say, 4% over the next few months at least. Sentiment is really doveish or has been really doveish. The words out of the Fed, they haven’t completely walked back Powell’s very doveish briefing last week. People still believe that the economy has a way to run and that rates will come down dramatically. I actually think the ’24 is probably going to be a pretty lackluster year. I think after the excitement of the last few years, I think we could all do for a little less excitement for a period of time. But the Fed has really been trying to crush volatility and cap yields. They’re trying to take the risk out of the market, but not have the market get out of control.
BFM
Can we take a look at some of the year and themes that have been circulating around? And this really comes from the UN Climate Change Conference that took place in December COP28. It did stop short of calling for a phase out of fossil fuels, opting instead for a transition away from them and specifically in energy systems. How are markets responding to this development? And what do you think are the implications of investors in the energy sector? Is this more likely to be a long-term development rather than a short term one?
Tony Nash
Absolutely a long-term development. COP28 paved the way for a much longer path to fully green feedstocks. They even talked about coal and released some of the pressure on coal power generation. Part of the problem here is higher interest rates. Higher interest rates are making these very costly green projects much more expensive. The government bureaucrats who are really pushing this stuff have to find a way to temper expectations for that green spending without completely surrendering to the fiscal constraints. A lot of these, say, middle income and emerging markets that are pushing green projects or having been pushed on them, this is where budgets are super tight. Look at a country like Sri Lanka where they have an IMF support. There’s push for green technologies, but they just can’t afford to do it. A lot of countries are looking at balancing that out and trying to figure out how they continue to move toward a greener future, but balancing out the fiscal reality of higher interest rates and budget constraints.
BFM
Now, we’ve been reading news about disruptions in their supply chain, especially in the Red Sea region. Now, geopolitical tensions have caused shipping companies to divert over $30 billion worth of cargo away from the Red Sea? What are the potential economic impacts, especially on the price of oil from disruptions on global supply chains?
Tony Nash
Yeah, it really depends on the horizon and how long this is going to last. I would expect this to be a relatively short-term event. If it is a relatively short-term event, then it’s pretty inconvenient. It’s pretty inconvenient, but it’s not really all that costly because we have shipping rates that are pretty low, we have fuel rates that are pretty low. The impact, aside from delays, and in the West, we’re at the end of the holiday season or we’re mid holiday season, but things shipping have already shipped in terms of finished goods. So the impact on consumers isn’t going to be felt like this is… If they’re going to do this, this is probably a really good time of year to do it because everything’s in shops.
BFM
Tony, thanks so much for speaking to us. And Merry Christmas to you. We look forward to catching up in the new year. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead, commenting there on the shipping disruptions in the Red Sea, as well as what the impact might be on oil prices also coming up out of COP28 and just the developments that could happen in the energy landscape.
BFM
I wonder whether 2024 is going to be the year of the Magnificent Seven, right? It was so much talked about in 2023, these seven stocks that literally lifted up the Nasdaq and, of course, the S&P 500, of course, the seven A, Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla.
BFM
I feel like it’s getting longer and longer. It used to be the fang stocks, and then it was like FAG, and then now it’s the Magnificent Seven.
BFM
Yeah, it went from 1A to double As, right? And now it’s a whole new acronym. So I don’t know, are they going to add a new Magnificent 8, 9, 10, or is it just going to be down to maybe that magnificent three, because some haven’t done so well. For example, Tesla is the one that actually hasn’t performed at all. That surprised me. But talking about, I think overnight, there was a big US talk that came out with the results, the biggest chip maker there, which is actually Micron, and they did better than expected.
BFM
That’s right. Micron issued a strong revenue forecast for the current period and reporting for the first quarter results topped Wall Street estimates. This really sent the shares of Micron surging about four % in extended trading. This is as data center demand is making up for a slowly recovering PC and smartphone market.
BFM
In the fiscal first quarter that ended on 13th of November, Micron saw a 16 % year-on-year rise in its revenue to $4.7 billion. Loss per share came in 95 cents, which was better than what analysts’ estimates are. And now the largest US maker on memory chips expects fiscal second quarter revenue to be between $5.1 to $5.5 billion, versus an average estimate of $4.99 billion.
BFM
Okay, so this pales in comparison with NVIDIA, which also does chips, but of course, NVIDIA is all about artificial intelligence. It’s the number one proxy if you want to write that theme. But Micron, on a year to date basis, still up 54 %. Now, does the street like this? Because it hasn’t been doing so well in the past in terms of the results. Are we at the trough? And the indications are yes. So unsurprisingly, there are 30 buys, seven holds, two sales. Consensus target price for Micron is $85.25. During after-market hours, actually, the stock did trade up eight %, so indicating that I think investors are going to be more optimistic just based on the guidance that the company is giving.
BFM
All right, it is 7:17 AM. Let’s head into some messages, but we’ll come back to cover the top stories in the newspapers and portals this morning. Stay tuned, BFM 89.9.
The CEO of Compete Intelligence, Tony Nash, was interviewed on BFM to discuss the current state of the US markets.
The S&P fell 1.6%, the worst decline in a month, and the tech-heavy Nasdaq snapped a seven-day rally, reversing gains of more than 1%. Nash suggests that this may be due to bad economic data, specifically PPI and retail sales falling, but also notes that consumer is still strong. Nash explains that the US economy is built on services, so people may be trying to confirm their downward bias in things, and when bad news is reported, a sell-off day occurs. Nash also mentions that if PPI falls, that should mean inflation is slowing, which should mean the Fed would ease a little and slow down on rate rises.
He also mentions that markets may be spooked by all the announcements regarding job cuts, such as Microsoft announcing they plan to cut 10,000 jobs and Bank of America telling their executives to pause hiring. Nash suggests that these job cuts are small in terms of the gap that we see in the US workforce, which is still missing millions of jobs in terms of the openings versus the available people.
Nash also mentions the yen tumbled yesterday after the BOJ went against market expectations by keeping its yield curve tolerance ban unchanged. He suggests that the BOJ is managing the yield curve to suppress borrowing costs and wants to keep it below 0.5%. Nash also mentions that Japan’s central bank is getting pressure from other central banks to keep their rates low, this means that if Japan lets their rates rise, then that would have a knock-on effect around the world and cause a repricing of government debt all around the world.
Nash concludes by saying that he expects a weaker yen, but doesn’t think we would necessarily hit those lows.
Transcript
BFM
This is a podcast from BFM 89.9, The Business Station. BFM 89.9. It’s 7:06, Thursday, the 19 January, and you’re listening to the Morning Run with Chong Tjen San and I’m Wong Shou Ning. And earlier on, we did ask our listeners how traffic is like and Roberto said traffic today really smooth and super low compared to just yesterday. He loves Chinese New Year in KL. And so do we. I just love Chinese New York because I like the feasting and I like the ang bao collecting.
BFM
I get the hint.
BFM
Yes, we’re all looking at you, Tjen San. But in 30 minutes, we will be speaking to Angela Hahn of Bloomberg Intelligence on the impact of China’s reopening to Markhouse gaming and hospitality sector. But in the meantime, let’s recap how global markets closed yesterday.
BFM
After a good run, all key US. Markets ended down yesterday. The Dow was down 1.8%, S&P 500 down 1.6%. The Nasdaq was down 1.2%. In terms of Asian markets, the Nikkei was up by 2.5%, Hang Seng up by 0.5%. The Shanghai Composite Index, it was unchanged, the Straits Times Index, it was up by 0.3%, and the FBMKLCI it was down by 0.3%.
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BFM
Why are we always again and again there’s a trend here for sure. But to tell us where international markets are heading, we have on the line with us Tony Nash, CEO of Compete Intelligence. Good morning, Tony. Help us understand what’s happening in US markets. Because the S&P fell 1.6% is the worst decline in a month. Tech heavy Nasdaq snapped a seven-day rally, reversing gains of more than 1%. Is this just really due to bad economic data?
Tony
Yeah, we saw PPI and retail sales fall today. The weird part is consumer is still strong. The US economy is really built on services, so I think people are trying to confirm their downward bias in things. And whenever we see bad news, we see a sell off day. So I’m not necessarily sure I would read that much into it, aside from just there was really nothing else going on. So people saw some bad PPI news and they were negative. So if we see downward PPI, that should mean inflation is slowing, which should mean the Fed would ease a little. Not ease, but would slow down on rate rises a bit. So that should have been positive news for markets. So it’s just kind of a weird read of some of that data.
BFM
Do you think markets are also spooked by all these announcements with regards to job cuts? Because Microsoft says they plan to cut 10,000 jobs. Amazon of course, made announcements last week, and even Bank of America is it telling their executives to pause hiring. Not great for the mood on Wall Street?
Tony
Well, maybe, but I think those job cuts are actually kind of small in terms of the gap that we see. So the US is still missing millions of jobs in terms of the openings versus the available people so I think there’s something like 7 million jobs open. We also had a million people post COVID not come back to work. So we have a gap in the workforce, just a status quo workforce of a million people, but we have something like 7 million open positions. So when Microsoft lays off 10,000 people or Goldman lays off 4000 people, sure, it’s tragic. It’s definitely tragic for those individuals. But in terms of the overall health of the economy, it really doesn’t make that much of a difference.
BFM
And Tony, the yen tumbled yesterday after the BOJ went against market expectations by keeping its yield curve tolerance ban unchanged. What possible reasons would the central bank have for keeping this status quo?
Tony
Yes, so the BOJ is managing the yield curve to suppress borrowing costs and they want to keep it below kind of 0.5%. There have been some hedge funds and some big investors who’ve been betting that they would tighten it. And the BOJ is just bigger. I mean, when they came back and they said, we’re going to hold the line at 0.5, they spent about $100 billion so far this month to defend that and they have plenty of resources to hold that. So the release issue is this is if Japan lets their interest rates rise, then Japanese, say, banks and pension funds and other investors would consider selling debt from other parts in the world and buying Japanese debt. Okay, so if Japan lets their rates rise, then that would have a knock on effect around the world and that would cause a repricing of government debt all around the world. So it’s not just the BOJ wanting to keep this for Japanese domestic reasons. They’re getting pressure from other central banks to keep their rates low.
BFM
Okay, Tony, but what does this then all mean for the yen? I mean, at its worst point, the yen was trading 150 against the US dollar. Today it’s 128. That’s a very wide range in just a few months. So what are your expectations?
Tony
It is yeah, certainly I would look for a weaker yen. I don’t know that we would necessarily hit those lows. But the BOJ has made their stance clear. The BOJ has a new head coming in in a few months. I would say they’re unlikely to dramatically change policy with a new head because they don’t want to make people nervous. So I think they’re going to aggressively defend the status quo. So I don’t necessarily think you see a yen appreciating dramatically from here. I think the bias is really toward the downside.
BFM
Okay, staying on the topic of currencies then, what’s your view on US dollar? We’re just looking at the Bloomberg Dollar Spot Index this morning. It’s already down 1.5% on a year to date basis. The era of King dollar, is it over?
Tony
Well, I think not necessarily. If you’re looking at the DXY, it’s really heavy on the euro. And so we’ve seen Europe do better than many people thought through the winter because we haven’t had a cold winter there and energy prices haven’t bitten as hard as many people thought they would. So I think Europe is doing better and the Euro is doing better than many people thought. And everything in Currencies is relative. China is opening, although it’s gradually. China is opening. And so that’s good for CNY. Again, in a relative basis, I think there is downward pressure on the dollar, but I don’t necessarily think we’re over on that. I don’t think we’re heading straight down to, say, 95. I think we’re going to see some back and forth over the next couple of months as we figure out what the forward trajectory of the dollar is. And a lot of that really has to do with what direction will the Fed take in terms of their rate hikes and their quantitative tightening. And it has to do with treasury activity from the US. Treasury. How will they spend, what will they do, how will they fund the US government?
BFM
Tony, some analysts are saying that without a recovery in the Chinese economy, a global recession is all but assured. But what are your thoughts on this?
Tony
I don’t necessarily think that’s the case. I think China will do okay this year, and I think regardless, Europe will likely dip into recession this year, although fairly moderate. In the US, you see a very strong employment environment. And so employment is one of the key considerations for recession. So I don’t believe the US. Will dip into recession really on the back of employment news more than anything else. And so once we see some of these layoffs with larger companies and we get through this as, say, equity valuations stabilize, I think we’ll start to see a renormalization in the US economy as the Fed kind of takes the foot off the brake of the US economy. Of course, the Fed will continue to raise rates, but they’ll do it at a much slower pace, and that will make people much more comfortable in doing things like investing capital and so on and so forth, that will help the US to grow.
BFM
All right, thank you very much for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his outlook for the world economies and also markets in the coming weeks. I think very much the question everyone has on their mind is Fed rates. What is the terminal rate? Will they basically raise rates too much and then cause the US. Tip into a recession? But I see increasingly our guests, our commentators sounding a little bit less pessimistic, hinting that perhaps we’re going to have a soft landing rather than a hard landing.
BFM
Yeah, I think it’s really on the back of the really still strong employment in the US. I mean, he did mention there’s still 7 million jobs available in the US. And there are one million people post COVID that didn’t come back to work. And I think that really is his key point, that the US may not slip into recession, but it looks like EU will and China, it looks like they are really on track to a better recovery this year. I’ve seen some economists say that GDP growth could be like five to 6% as well.
BFM
I see that consensus figure that range is around there for China’s GDP for 2023. Now, turning our attention to corporate that released results they reported, which is Alcoa excuse me, which is aluminium company. They reported fourth quarter results earlier today, which saw losses narrow to $374,000,000. Loss per share as a result was $2.12. The loss included a 270 million charge related to tax expense. Revenue did decline 20% to $2.66 billion.
BFM
And Alcoa attributed the decline in revenue to lower prices for both Alumina and aluminium. Additionally, Alcoa will see some executive leadership changes effective February 1, including CFO William Oplinger reassignment to chief operations officer, in addition to his executive vice president role.
BFM
Okay, the street doesn’t really like this stock when you look at Bloomberg. Five buys, only seven holes, no sells. Consensus target price for the stock, $52.18. During regular market hours, the stock was already down one dollars. And now I think we need to talk about one of the world’s biggest companies, Apple. They are expanding their smart home lineup, taking on Amazon and Google. Are you surprised by this move?
BFM
Jensen not surprised at all. I think Apple is really the leader in terms of innovation, and we’ve seen it over the years, so no surprises there. So I think they’re launching some new devices. There’s a smart display tablet, there’s a HomePod. There’s a TV box and a MacBook and Mac mini using their cutting edge new processor, which is the M Two chip.
BFM
Are you going to buy any of these gadgets? You don’t even use an Apple phone. You haven’t joined a cult. You’re about the only one on the morning run. You and Philip sees that hanging on.
BFM
The iPad at home, but they’re quite old.
BFM
Okay, but will this make a dent to Apple’s earnings? Perhaps. I think they are trying to diversify their product range, because the iPhone, I think, hasn’t done as well as expected. If you look at Apple or Cost, still a darling on Wall Street. 36 buys, eight holes, two sells. Consensus target price for this to $169.24. At regular market hours, it was down seventy three cents to one hundred and thirty five dollars and twenty one cents. I, for one, will be curious as to what these products will be or how they’ll fare. Up next, of course, we’ll cover the top stories in the newspapers and portal. Stay tuned for that. BFM 89.9 you have been listening to a podcast from BFM 89.9, the business station. For more stories of the same kind, download the BFM app.
The released Fed minutes show that most officials are backing a slower pace of interest rate hikes. Markets reacted positively but this is false optimism as the terminal Fed Funds Rate may eventually be higher. The 3Q reporting in the US is also coming to a close and 75% of corporates experienced downgrade in earnings. Have the cut in earnings by analysts been adequate or will there be further downside, with 2023 outlook still uncertain? For answers, we speak to Tony Nash, CEO, Complete Intelligence.
Transcript
BFM
BFM 89 Nine. Good morning. You’re listening to the Morning Run at Thursday. It’s Thursday, the 24 November November Friday, junior, as we like to call it. Here. I’m Shazana Mokhtar with Wong Shou Ning and Chong Tjen San. As always, let’s kickstart the morning with a look at how global markets closed overnight.
All key US markets showed gains as most members of the Fed said the pace of rate hikes will slow down. So the Dow was up 0.3%. The S&P500 was up 0.6%, and Nasdaq was up 1%. In Asian markets, the Nikkei and Hang Seng was up by 0.6%. The China Composite was up by 0.3%. The Straits Times Index was down by 0.1%, and our very own FBMKLCI was up by 0.2%.
Joining us on the line now for more on what’s moving markets, we speak to Tony Nash, CEO of Complete Intelligence. Hi, Tony. Good morning. Now, let’s start with just some reactions on the Fed minutes that were released. It showed that most officials are backing a slower pace of interest rate hikes, but that the terminal rate might need to be higher. What do you think? Are we seeing a relief rally? And is that sustainable in the short term?
Tony
Yeah, I think the ultimate destination is probably the same, but the pace of getting there is slower than many people thought a couple of weeks ago. So I think what it means is we’ll see more, say, 50 and 25 basis point hikes. That’s the expectation. It’s still possible we’ll see a 75 if Powell really pushes hard for December, but we’re still going to see a 5, 5.5 terminal rate, depending on really how things end up for CPI and PPI next month. But it’s just the pace and markets are more comfortable with a gradual adjustment to higher rates than the continued kind of shock treatment.
BFM
And Tony, the US reporting period is coming to a close. How would you assess the quality of corporate earnings release so far? How well have they tracked market expectations?
Tony
They’re OK, they’re pretty weak, actually. Compared to 2021, we had, I think, 25% earnings growth in ’21 about this time last year. They’re just over 3%. So it’s not even near where it was last year.
Something like 75% of companies are seeing estimates for their downgrade. So people expecting inflation to endure longer than they thought. If you remember a year ago, people were saying inflation was transitory, so they’re saying inflation will endure longer and rate hikes will continue.
So with credit tighter, businesses and consumers are not expected to spend as much.
So going forward, there is a fear that wallets will be more closed than they are now and earnings will continue to be tight.
BFM
Which just confuses me, Tony, because if the Fed stops their rate hikes at least decelerates the pace of it. And at the same time, corporate earnings aren’t going to be as robust as ever. Then why is the S&P500 above 4000 and the Dow Jones at 34,194 points? I mean, they’re just in fact, the Dow is only down 6% on a year to date basis and the S&P down 15%. Shouldn’t markets be actually more bearish than they are now?
Tony
Well, I think there are a couple of things happening there. I think first, there really is consumers have continued to spend and businesses have continued to spend in the US. Although we’ve seen economic growth slow dramatically, we’ve had spending continue to push forward. So if the Fed slows its tightening cycle, and keep in mind, they haven’t really started quantitative tightening, meaning getting things out of their balance sheet. They’re only, I think, $200 billion off of their high.
But if the Fed continues to tighten at an accelerated pace, then markets are worried. But again, if they slow it down, the feeling is that spending will move in stride. It won’t necessarily be too shaken up.
Also, on inflation, don’t forget inflation didn’t really start on an accelerated basis until November of ’21. So we had inflation, but fairly muted inflation then. And so what we get after November, well after this month, is what’s called a base effect.
So we’ll likely continue to see inflation rise, but not necessarily at the pace that it’s been over the past, say six to nine months. So does that mean inflation is peak? No, not at all. But it means the pace of the rise of inflation is likely going to slow on base effects.
So if that happens, we’ll have a lot of people declare victory over inflation, but I think that there is an expectation that that rate will slow as well.
BFM
Can you look at the prospects of retailers like Best Buy? We see Abercrombie and Fitch. These names are defying inflationary trends and higher rates to post better results than expected. So why has this sector been the exception to the norm?
Tony
Yes, the quick answer is most of those guys have been pushing price. So they’ve been passing along their higher labor and goods costs onto consumers.
Now they’ve been pushing price while sacrificing volume. So they’ve been pushing 8 to 10 to 15% price hikes in many cases. But they’ve had fewer transactions between one and say 6% fewer transactions.
Regardless, they’re earnings have risen. So they’re not as worried about fewer transactions. They’re focused on keeping their margins up.
And so when you look at retailers like Walmart, which has mixed, say, general goods and food, they’ve done very well. They had a very difficult Q2, but they did very well this past quarter.
Home Depot, which is a DIY store, has done very well because they pushed price Cracker Barrel has done very well.
Cracker Barrel. These are not these are not retailers that are at the high end of the market either. These are mid and even, say lower end companies, but they’re pushing price on the middle and lower end of the market.
Higher end of the market? They’re doing great. So it’s tough to be a consumer in this market because price definitely continues to be pushed and we expect price to continue to be pushed through probably Q2 of next year.
BFM
And Tony, with potentially slower pace of interest rate hikes, how do you expect the technology sector to do? Is there more pain to come for the likes of Amazon and Meta?
Tony
For sure. Amazon, Meta and technology companies generally do very well in very low interest rate environment, where the money is effectively free or negative real interest rates.
As you have to pay for that money, it becomes tougher for those companies to do well because their core investment is in technology. And we had things like Mark Zuckerberg at Meta really went off the rails with some of his spending and investment.
It’s not to say that the Metaverse investment is not ever going to happen, but much of that stuff really went way overboard. Same thing with, say, Amazon with some of their infrastructure investments and delivery investments.
So we do expect HP today, I think announce 6,000 jobs to be lost over the next, I don’t know, twelve months or something. So we do expect much more pain in tech. We expect that to continue until at least the end of Q1, if not a little bit further.
BFM
And Tony, let’s talk about oil because WTI for futures delivery in January, $77 a barrel. And we know that there’s an upcoming OPEC meeting in December. What are your expectations in terms of oil price then?
Tony
Yeah, it’s tricky, right? Because oil prices are kind of in that zone where a lot of people are comfortable. And so the question is, is this acceptable to OPEC members? So Saudi Arabia, UAE, Iraq and Kuwait have already come out and said they’re going to stick to the current plan, the current cuts that were already announced last month.
But we have things like the Russian price caps coming into play. And you know, our view is the price caps are pretty meaningless actually, because Europeans are pretty good at circumventing the kind of emotional embargoes they put in place.
I’m sorry to put it that way, but they put these laws in place and then they circumvent them pretty well. A lot of this is theater. So that’s not the price caps are not going to have as much of an impact as many people thought. So it’s possible if we get into next week and crude prices start coming back pretty strongly, or sorry, if we get into next week and crude prices are as weak as they are now, we may see a 500,000 barrel per day cut. I think that’s a possibility, but it’s likely they’ll stay on what’s already been announced.
BFM
Tony, thanks very much for speaking with us. And since it’s Thanksgiving eve. Happy Thanksgiving to you. That was Tony Nash, CEO of Complete Intelligence, giving us his take on the trends that he sees moving markets in the days and weeks ahead.
All eyes, of course, on that all-important inflation number and how that will affect how the Fed raises hikes moving forward.
I think the key takeaway for me was he mentioned that 75% of corporates in the US had downgrades, which I feel it’s a good thing as it brings expectations lower and more in line with future expectations and it also gives perhaps some room to surprise on the upside.
Yeah, well, markets seem to be at crossroads, but a little bit cheered by the fact that the Fed isn’t going to raise rates as aggressively as they have in the past. But I want to keep my eye on corporate earnings. I think that if you see continuous downgrades by the analyst community, you see the messaging coming out of US corporates that things aren’t looking as rosy as they are, then it’s just going to be hard for the Dow, S&P500 to actually break through their current resistance levels. So I think it’s something we have to keep an eye on.
Investors were not impressed by results from Meta and Alphabet leading to a sell-off in tech stocks on Wall Street. We speak to Tony Nash, CEO of Complete Intelligence, to find out how results from Apple and Amazon set to come out soon might impact overall market sentiment.
Transcript
BFM
This is a podcast from BFM 89.9, The Business Station.
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BFM 89 Nine. Good morning. You’re listening to the Morning Run. I’m Shazana Mokhtar with Keith Kam. It’s 7:06am on Thursday, the 27 October a rather overcast Thursday morning. For now, perhaps we’ll see the sun come out a little bit later. As always, we’re kickstarting the morning with a look at how global markets closed overnight.
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It was a bit of a mixed day for what generally red though the Dow Jones on Wall Street, the Dow Jones ended marginally higher, that’s 0.01% barely changed. S&P 500 was down 0.7%. But the action was on the Nasdaq that closed 2% lower because of disappointing results from Meta and Alphabet. We’ve just got to wait for the Apple and Amazon results that will be out tonight US time. So we’ll be discussing that tomorrow. Early in the day, Asian markets were generally green. The Nikkei was up 0.7%, the Hang Seng was up 1%. The Shanghai Composite and Singapore’s STI, they were both 0.8% higher. And back home the FBM KLCI closed 0.7% up.
BFM
For some thoughts on what’s moving international markets, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony, thanks for joining us today. Now, notwithstanding overnight results, global equities led by US stocks have extended gains over the last week, avoid by the expectations that peak inflation has been reached. What do you think? Are they being too sanguine about inflationary pressures?
TN
I don’t necessarily think they’re being too sanguine. There are cases to be made that housing prices and wage growth have turned the corner. Goods price inflation has likely peaked, but there doesn’t necessarily mean that we’ll see prices decline. Regardless of what’s happening in the inflation environment. The Fed is going to raise rates in November, likely by 75 basis points and again in December. So the Fed typically lags inflation on both sides on the way up and on the way down and so they’re likely going to over tighten. Markets have largely factored in a 75 and 50 basis point hike over the next two months. So are they sanguine? I don’t know. I think if we start to see inflation really take a downward turn, then it could be a very good thing for all of us.
BFM
But Tony, the 75 basis point expected hike by the Feds comes at a time when a lot of analysts are also expecting recession to hit the US sometime sometime next year. Would there be some reassessment as we go along?
TN
Well, we’ve already had kind of negative economic growth for half a year, so we do need to see jobs come down. And with the tech earnings coming out, as you guys mentioned in the news segment, we expect tech companies to announce some pretty major layoffs before the end of the year.
BFM
Let’s get into that a little bit, Tony, in terms of tech results, I mean we did see Meta overnight, we’ve seen how Microsoft also came in below market expectations. What do you think this tells us about the direction of the tech sector moving forward, especially with this environment of rising interest rates and a looming global recession?
TN
Yeah, well, tech companies have overhired. They were hiring based on valuation, not necessarily based on revenue. And so now that their valuations have come down, they have excess staff and they need to clear the decks. And the productivity within the technology sector, although it sounds a little weird, the productivity is pretty low because they’ve had too many people. So as these companies come out and give pretty sad earnings reports, there’s going to be pushback from investors that they need to lay people off, and that will come out in the next couple of months. So we’ll see some of that. Now, if you compare that to, say, companies like Coca Cola and GM who beat the street, those companies have been able to pass on cost rises to their customers, so they’ve factored in cost rises to their price. Now, many of those companies saw volumes decline, but price rises more than made up for the volume decline. So they’ve beat expectations by raising price, in many cases by double digits.
BFM
Tony, we’re expecting Amazon and Apple results to come out tonight, and what we’ve seen from the previous results have sort of, well, dampened market sentiment, if you may, what are your expectations going forward?
TN
Yeah, I don’t think they’re going to be stellar results. I think Amazon had this, at least in the states, they had this kind of second prime day a couple of days ago to goose sales revenues for the quarter, which tells me that things are not stellar at Amazon, and so there are signs that things aren’t working out. The new iPhone is kind of a yarn for a lot of people, so it’s not necessarily pushing out. And so I think the expectations are for pretty mediocre results. So if they report in excess of expectations, then tomorrow will be a fantastic day in markets. But I don’t think that’s necessarily likely at this point.
BFM
All right, something we’re going to be keeping an eye on. Another thing to keep an eye on is the slew of indicators that are going to be coming out. We’ve got US GDP, durable goods, and initial jobless claims numbers. Which indicator are you paying the most attention to in terms of being a gauge of how well the economy is going?
TN
Yeah, one of the things that I always tell people to be careful of with some of these macroeconomic numbers is things like GDP. What’s being announced is what’s called a preliminary release. So they kind of have a sketch of what’s happening in the economy, but it’s not detailed. So when these GDP announcements come out and it’s the first release, it’s not really accurate. And those things can change by 50% or more in some cases. So GDP is not really something I look to. It’s kind of a headline, but it doesn’t really mean a whole lot.
TN
Durable goods is interesting because that tells me that people are investing in things, buying things that last a long time so that they can deliver new services or new products in, say, three to six months time. So that would tell me people are looking forward. So if durable goods is a bad number, then it tells me people are really just trying to take care of today and not investing in the future.
TN
Jobless claims. I don’t know. Sometimes it’s meaningful, sometimes it’s not. I think the sentiment around jobless claims is overhyped. The Fed is definitely watching jobless claims because they want to see wages and jobs come down. So with jobless claims, it’s one of those good news and bad news types of things. So we’re kind of hoping for a poor jobless claims so that the Fed can kind of tick off the box and say, mission accomplished.
BFM
Tony I just want to pick your brains on this. We’ve seen three straight days of market gains on Wall Street and this morning, or rather last night for you or today for you. We’ve just seen a reversal of that. Is this an indication that maybe fortunes might be changing going forward?
TN
I think it’s a good question, and I think it’s hope that the Fed is changing course. And I think regardless of what comes out, say, this month, and I think probably next month, I don’t think the Fed is going to change course. They were caught flat footed. They said that inflation was transitory, they messed up, they’re embarrassed, and they’re going to make people feel it. And people are going to lose jobs and homes and all sorts of things because regional Fed governors don’t want to be embarrassed again. So I think at least over the next two months, they’re probably not going to change course. They’re going to continue to tighten. I don’t think there’s been a dramatic change in everything. I think this is a little bit of hope, and I think it is some earnings that have been reported that are better than expected. But I think in general, people are being very cautious about trades they make.
BFM
Tony let’s end the conversation with a look at oil prices. They are taking a breather on news that US stock bells have risen. How will that translate in terms of energy prices as the Northern Hemisphere moves into winter?
TN
Yeah, the SPR, the Strategic Petroleum Reserve release, it’s put a lot of volume in the market in recent months. And of course, that’s lowered crude prices and it’s lowered the price of refined products. So after the election, and it’s no secret we expect the SPR releases to decline dramatically. And we’ve talked for a few months about how we expect crude prices to kind of spike towards the end of the year. And that would be spikes in crude prices and downstream products like, say, petrol. So we do expect that to happen in the North American market, kind of in Q4 and through Q1 out of the effects of that SPR release wear off.
BFM
And meanwhile, OPEC has also forecasted that China’s oil demand will decline by 60,000 barrels per day. Is that something that you see could cap further spikes in prices?
TN
It could. I mean, 60,000 barrels isn’t a lot, but it could. I think if China were simply to end COVID Zero, it would really drive consumption of crude. So OPEC must expect further dampening of the economy in China, and that’s no surprise. I mean, China is really having a hard time right now, and whether or not they can come back in ’23 is questionable, so it’s no surprise. But 60,000 barrels a day really isn’t a lot, and I don’t think it would affect prices dramatically.
BFM
Tony, thanks as always, for speaking with us this morning. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead.
BFM
Yeah, so we did see Meta shares plummet 17% on week fourth quarter forecast. And earning miss. It basically came up well short of Wall Street’s expectations. Earnings per shares earnings per share was $1.64 versus a $1.89, which was what was expected. Revenue was at $27.7 billion. Daily active users did meet expectations at 1.98 billion users, and the monthly active users came in at 2.96 billion versus 2.94 billion.
BFM
I mean, Meta is contending with a broad slowdown in online ad spending, challenges from Apple’s iOS privacy update and increased competition from other players like TikTok. It’s getting more expensive to run the company as Meta’s costs and expenses rose 19% year over year to $22.1 billion. And that’s something that Tony alluded to earlier, the fact that they’re likely going to see more layoffs moving forward. Tech companies have just been on a hiring spree that they cannot afford at this point. And I bet the WhatsApp outage the other day didn’t help a Meta’s fortunes either, at least in terms of its reputation and image. It could see a lot of people try to migrate elsewhere from using WhatsApp as their main communication source to another platform that is more stable, perhaps.
BFM
I must say we could wait until to see what happens towards the end of the year. Well, November actually, just next month when the midterm elections come, and we see if there’s any pick up in usage then.
BFM
That’s true. All right, it is 7:18 in the morning. We’re heading into some messages, and when we come back, we will be covering the top stories in the newspapers and portals this morning. Stay tuned. BFM 89.9. You’ve been listening to.
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A podcast from BFM 89 Nine, the business station. For more stories of the same kind, download the VFM app.
Sam Rines wrote a piece on business costs and uncertainty weighing on earnings this season. He talked us through what’s happening with interesting charts on Caterpillar and Old Dominion.
We saw Facebook turn dramatically this week and we saw KWEB up over 7% on Friday. At the same time, Amazon, Pinterest, and others with disappointing earnings. Tech isn’t really a sector-wide play as it was in 2020 and 2021. Alber Marko explains what should we be looking at in tech.
We’ve had a lot of action in Europe with Russia cutting off the gas in Poland and Bulgaria and a demand that oil and gas be paid in Rubles. Tracy Shuchart explains what it means for commodity prices and the market in general.
Key themes from last week
Earnings: COGS in the Machine
Earnings: Tech
Europe-Gas-Ruble Chaos
This is the 16th episode of The Week Ahead in collaboration with Complete Intelligence and Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.
TN: Hi everyone. This is The Week Ahead. I’m Tony Nash. We’re joined today by Tracy Shuchart, Sam Rines, and Albert Marko. Before we get started, I’d like to ask you to like and subscribe. Also, please note this is the last weekend for our CI future promo. $50 a month for thousands of assets reforecast weekly. So please go to completeintol.com/promo. Subscribe for $50 a month and you will get global market and economic information. Thanks for that.
So, guys, this week is a little bit exciting. We have a few key themes that we’re looking at this week. Two of them are earnings-related. One is COGS in the machine, which is related to a newsletter that Sam Rines put out today. The other one is tech. And the last thing we’re looking at is the Europe-Gas-Ruble chaos.
So, Sam, you wrote a piece today on business costs and uncertainty weighing on earnings. So can you walk us through this? We’ve got a couple of slides from your newsletter up. One is Caterpillar Earnings. Maybe you could walk us through that first and then we’ll go to the Old Dominion earnings and walk through why those are so important.
SR: I think it’s really interesting to kind of at least be able to get some real-world understanding of what’s happening on the ground. Right. We all know wages are going up. We know costs are going up. We know shipping costs are going up. But how that was going to be reflected through the earnings season was somewhat of an unknown. Right. We knew it was going to affect us, but we didn’t know to what extent.
The interesting part about Caterpillar and one of the reasons I like to point it out is that they had pricing power. They pushed prices pretty heavily down the system. The problem for them was that they couldn’t push the price as much as their materials and shipping costs went up. It was simply too big of a headwind, at least for the first quarter. Their orders are fine. The business itself is okay. But generally what we saw was pricing power. Not… There were a few, but pricing power was generally unable to keep up with the cost pressures overall.
The interesting one and kind of related to Caterpillar are Polaris. Polaris is one of the most interesting companies. It’s consumer-facing yet, it’s a manufacturer. It’s something you don’t need a new side by side typically. You don’t need it. Right. These aren’t needs. These are more of discretionary spending. They had a very similar problem to Caterpillar. But the end market user for these is very similar to Harley Davidson. There was another one that had issues.
The inventories are extraordinarily low. Right. Their inventory levels at dealerships are very low. So eventually when they can pick up their production, they’re going to be able to push up their production numbers pretty significantly just to be able to refill the inventory pipeline at their dealership. So while it’s a big headwind today, it’s worth watching call it nine to 18 months down the road when you begin to see signs of these material costs abating, the supply chains getting back to normal.
Those companies are going to be able to put up some pretty interesting numbers very quickly.
TN: So, Sam, will they leak in gradual price rises? Because it doesn’t sound like they’ve been able to do it all at once. But will they continue to raise prices even as, say, the primary factors of inflation start to abate a little bit?
SR: Oh, yes. That’s been a constant theme of this earnings season has been. We will continue to either try to find ways to squeeze costs out of the supply chain, and normalize those somewhat, but almost more emphasized was there will be price increases to offset all of this.
To your point on Old Dominion, they just tossed on fuel surcharges.
TN: Yeah.
SR: If you’re going to have problems with freight, fine. But we’re going to surcharge you on fuel. And they only pushed about 50% of their overall gain. And year over year was pure surcharge. So it was an interesting one.
TN: And fuel charges are sticky, right. They don’t take those off right when fuel prices go down, they keep those for a year after the prices go down, right?
SR: Correct. Right. It’s the interesting part about all of this is these price increases are not going to be reversed. Caterpillar is not going to take off their price increases. Polaris probably isn’t going to take off some of their price increases, Old Dominion is unlikely in the near term. These are going to be fairly sticky over time.
TN: Okay. So last week when both you and Tracy weren’t here and Albert and I did the heavy lifting to keep the show going, we talked about sticky prices and we talked about how we hit new pricing levels. Even if the rate of inflation slows down, we’ve hit new pricing levels. Is that semi-permanent? Is that permanent or is that transitory?
SR: It’s a step function, right. Okay. You step up and then you’re not going to step back down. You step up the price increases and then maybe you can trickle two or 3% inflation on top of that going forward. But step-functions do not reverse. And I would say that this is much more of a step function type deal.
TN: Okay, good news, Tracy. You were going to add?
TS: I was just going to add I mean, the business survey. The Fed business survey came out small business survey came out this week and they were looking at it in four out of ten small businesses said they were looking at price increases of 10% or more. So this is across the board, not just for mega-cap companies.
TN: Right. Yeah. And even since I talk about coffee so much, even one of the small coffee roasters who I know, said his costs had risen 50% over the last year and he was only able to put in a 20 to 25% price rise. But I’m certain that he’s going to continue to gradually work price rises over the next year or two as we’ve hit this kind of plateau, or at least step function in price rises. So good news all around. Right.
So as we stay on COG, Sam, you had a portion in your newsletter talking about Meta, and we’ve got that on-screen talking about their G&A increase. Can you talk us through that?
SR: Yeah. So I thought it was pretty interesting. They increased their employee base by 28% year over year. I mean, this whole idea is that hiring is tough. It wasn’t for Meta. But the funny part is, or not funny. But G&A was up 45, so you hired 28% more people, but G&A popped 45. Again, that’s a step up that probably isn’t going to step down any time soon unless they’re going to begin laying people off. Right. Maybe it’ll roll out of earnings next year, but it’s not going well.
TN: We’ve seen some tech layoffs, right.
SR: Some.
TN: Announced over the past week. It’s not like it’s not a huge trend yet, but we’ve seen a few.
SR: Yeah. And the other important part that I think was overlooked was Snapchat, Facebook, or Meta, whatever you want to call it, when they announced earnings, they cited that, listen, when you have inflationary pressures, wage pressures and you’re a small business, guess where the discretionary spend is, that’s marketing budgets.
Marketing budgets will get cut and get cut fairly dramatically and fairly quickly if you continue to have this. And not to mention if you don’t have the stuff to sell and you continue to have supply chain issues, it doesn’t make a whole lot of sense to spend a lot of money on marketing. So I think those two raised some red flags, I think we’re subtly overlooked by a lot of people sitting on.
TN: We talked about this last week and how a lot of ad inventories are likely to come online soon. So there’s a supply problem and a demand problem with those companies going forward. I think the names that come to mind will probably do fine. The smaller names are probably going to suffer. So it might be tough.
Albert, on that, we saw Facebook turned dramatically this week in the last half of the week after they reported earnings. KWEB was up 7% today, a stock that we talked about here a few weeks ago. But at the same time, Amazon, Pinterest, and others are disappointed. So tech was a sector-wide play in ’20 and ’21. It’s not that anymore, is it?
AM: Yes and no. The problem with tech is that there are about a dozen names that the Fed uses to pump the market. So forget about Pinterest. That’s too small of a company. We’re looking at Google, Facebook, Meta, whatever you want to call it. Not so much Amazon, but the other ones like AMD and whatnot? So they’re going to yoyo those earnings in those pumps. So what they’ll do is they’ll wait until Netflix…
They know that Netflix will miss and they’ll pump the market to soften the blow and then they know that Apple is going to beat so they’ll let the market sell-off and use that to drive up the market. So this is just a cat and mouse game by the Fed to just manipulate the markets until what they’ve been saying is a soft landing.
The tech earnings are just playing right into that narrative of theirs. They know what the earnings are beforehand and they just play the market like that. So going on with tech earnings? Yeah, I mean they are weak. We can see that they are incredibly weak.
Will they be weak for the whole year? I don’t know. They do like the Nasdaq. So I wouldn’t want to be short tech going into the summer. But that’s just my personal opinion. But then you see KWEB surge because the Chinese start talking…
TN: Ion subsidies. Right. And government activity.
AM: It is what it is and you never know what type of government contracts Meta, Google, or whatnot will start popping into their bookkeeping. It’s a really dangerous game to short tech in my opinion.
TN: Yeah, well it’s interesting to me to see the user’s numbers like aint Netflix and I know there’s a couple of weeks old now but Netflix goes down. Pinterest goes down, Snapchat. These sorts of things. Amazon was kind of tepid but Facebook was really good. So I think we’re seeing almost some elasticity in some of these markets as we see people going back to work and we see other things happening. We’re finding out who’s going to be there no matter what and whose demand is a little bit flexible.
AM: Yeah. And then you’ll also find that some of these tech companies will look to acquisitions to boost their user numbers going into the fall. So this is why I don’t like the short tech at this level.
TN: By the way, if anybody is looking for a tech acquisition. Right here.
AM: Yeah, cool. 46 billion. Cool 46 billion will do it.
TN: Okay. Let’s move on to commodities. Tracy, there have been a lot of issues in Europe with the ruble as we’ve seen more countries decide to pay for oil and gas in rubles. We’ve seen some interesting action with the Euro and the ruble and with gas prices. Can you talk us through what’s going on there? And really, what does it mean? Because we’ve seen the price action. But what do you see its kind of meaning going forward?
TS: I mean what it means is Europe’s not directly paying in rubles. Right. What they’re going to do is they’re going to set up an account at Gasprom Bank. They will continue to pay in Euros, dollars, and local currency. In turn, Gasprom Bank will convert that currency into a separate account. So it’s not technically against sanctions. It’s a workaround. Right.
The interesting thing is EU didn’t have a choice, to be quite honest. They’re dependent on Russia for 67% of their natural gas. They don’t have LNG storage facilities built out. Those are going to take at least two to four years. I don’t care what they say next year, it’s not going to happen. Those things take a very long time.
So right now, they’re kind of being held hostage by Russians. So they’re going to have to pay as much as they don’t want to. Now they can wean themselves off of Russian oil a lot quicker because you can have the Middle East pick up that slack and they don’t import all that much. Right. It depends on the country. But Europe is not a huge source of oil exports for Russia. So that can happen.
And so for what I foresee, they’ll probably do that just so that they say we’re getting rid of Russian energy. Right. So I think you’ll see Russian oil cuts, I think that can be done relatively quickly. But as far as nat gas, I think it’s going to take a lot longer than most think. Even though they said they wanted two-thirds off by the end of 2022 and then completely out of Russian gas by 2027.
Again, I think that’s going to take a lot longer than they anticipate.
TN: Yeah. Can you imagine the conversion fees that Russian banks are charging for Euro to ruble? We’ll never know. Right.
TS: Banks are going to make money. It’s good for Russia. Right. That keeps the currency stable and it keeps their economy stable. And so, I mean, it’s kind of a win for Russia on this because the banks are winning and their currency and economy are winning on this one.
TN: Yeah. So we also had an emergency kind of this week with Russia saying they would turn off gas to Poland. And they did. But Poland has taken other measures since the war started to get other sources of gas. So it didn’t hurt them all that much, did it?
TS: Yeah, no, not at all. I mean, it was Poland and Bulgaria. They’re very adamant from the beginning to get out of Russian gas. They also don’t rely on it as much as, say, Germany does. Poland already built out an LG storage facility tank that’s completed.
They also produce a lot of coal and they use a lot of coal. And so that was not a surprise to me, nor did it hurt those countries very much.
TN: Right. What country do you think is in the most difficult position right now? Is it Germany?
TS: Germany hands down. A lot of the reasons are because they don’t have any other pipelines into Germany except Russia. So they’re definitely in the weakest position right now.
TN: Okay. So, guys, what do we expect, like, with the ruble going forward? It’s hit its pre-war levels. Do we expect the ruble to strengthen?
TS: Right now, yes, I think that it probably will continue to strengthen just because they’re asking for payments of commodities in the ruble.
TN: They’re not asking.
TS: Well, yes, they’re holding hostage. But it’s not just in other words, it’s not just the energy complex. It’s metals, agriculture, et cetera. So I think that we’ll probably see that continue to strengthen.
TN: Okay. Hey, I also wanted to ask you about fertilizer. I saw some of the Fertilizer stocks come off a bit this week. I know that we’ve talked about fertilizer before. Is it still as urgent of an issue as it was, say, three weeks ago? And if it is, why are Fertilizer stocks coming, falling this week?
TS: Well, I think partially because we saw kind of natural gas pullback a bit. Right. That kind of alleviated the pressure. We also saw the broader market sell-off, which means sell what you have to if you get a margin call. Right. And you had something like IPI, whose earnings were not as good as they could have been. Right. Considering. So it’s kind of a combination of everything.
SR: Yeah. And you are beginning to see signs of demand destruction as well. There was an announcement by a Brazilian farming giant that they were going to cut their fertilizer usage by 25 or more percent this year. So, yeah. Yields down, fertilizer up.
AM: Not to mention the good old dollar looking like it’s going to go to 110 on the Dixie causing problem everywhere.
TN: What do you think about that, Albert? What’s the time horizon for 110?
AM: I think we get that within the next two months. Yellen is on a mission to destroy emerging markets. She’s going to do with the dollar. She did this in 2013 when she was Fed chair. So, I mean, it’s the same playbook. It’s nothing new.
TN: So if the dollar does hit 110, does it stay there for some time, or is it just kind of marking territory, saying, we can do this again if you don’t behave?
AM: I think it’s a moment in time. Keeping the dollar at 110 is going to cause really big problems across the world. So they can’t keep it there too long. But they can… Even China talking about the stimulus, 109 causes a problem for China. It’s quite an event to see that happen.
SR: Yeah. Into Albert’s point, and I think this is incredibly important, china has to buy food. Right. And they’re buying, you’ve seen the rip lower on RMB, CNY, that thing has gotten crushed over the last week. And they’re still buying corn and soybeans from the US en masse. And that’s getting much more expensive very quickly. That’s going to be a problem.
TS: The only thing that’s helping them right now is that their entire country is locked down. Right. I mean, that’s the only thing that’s helping slow the blow and kind of making these commodities pull back a bit so they’re not as expensive.
TN: But Xi has got to make some money to feed his people. Right. Otherwise, you’re going to have Mao 1961 all over again.
TS: What he’s doing is insane. Don’t starve your people. So obviously ulterior motives are going on there.
TN: Yeah. So we’ll talk more about China next week. Okay, good. Let’s have a week ahead lightning round, guys. What are you looking at? Kind of most Interestingly for the week ahead? Sam, if you can go first, what’s at the top of your mind right now for the week ahead?
SR: Top of my mind is going to be energy company earnings and what they’re saying about their production, whether they’re upping premium, where they’re getting production from, how they’re doing it if they’re doing it, whether or not Capex budgets are moving higher, how they’re moving higher and where. And then any comments on labor pipe concrete, et cetera, I think will be very interesting as we go through next week.
TN: I think you stole Tracy’s answer, though, right?
TS: Exactly what I’m looking at. I expect to look at production probably has not increased that much because I think they’re having labor issues and supply chain issues have not gotten any better, if not ten times worse. So that’s what I’m looking forward to.
Also always keep an eye on China. Beijing is just locked down or partially locked down. So how many more cities are we going to have, how many more States we’re going to have, and how many more people are going to be locked down for how long? Because that’s going to affect the commodities market in the midterm. But that said, if you look at the commodities complex, we’re still over 100, like 104.
So it’s still holding strong, even though we’ve had a lot of demand. They say about a million and a half barrels per day of China demand is kind of off the market right now.
TN: Yes. So if they come back online, it’s game on, right?
TS: Yes.
TN: All right. And Albert, what are you looking at for the weekend?
AM: Probably the most dovish sounding 50 basis point rate hike you’ll ever hear from the Fed. Like we did this and we’re sorry. If they want to break this market down sub 4000, go ahead and try to talk hawkish but I don’t think they want to do that. So Jerome will just put his foot in his mouth like usual and say something stupid but it’ll be dovish that’s what I’m watching.
TN: Sam, Fed guy? What do you think, Sam?
SR: I think the same. Listen, I think they’re going to try to avoid talking too much about another 50 basis points hike. They’re going to try to get away from providing clear forward guidance and be incredibly vague because if they’re vague about what they’re going to do then it’s going to be perceived as dovish. So agree with Albert, right? You get a 50 basis point hike and then we’re not sure what we’re going to do next, right?
TS: Somebody brought up like 75 basis point hike this week and the Fed was like, no, we’re not even considering that.
TS: Yeah, exciting. Sounds exciting. Okay guys, thank you very much. Have a great weekend. Thank you very much.
In this episode, we talked about some really interesting tech earnings like of Facebook and Amazon, crude and natgas prices, and the bond market. How does the NFP data affect the bond market? Also discussed central bank’s reaction to inflation and why you should be keeping your eyes on the CPI?
This is the fifth episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.
For those who prefer to listen to this episode, here’s the podcast version for you.
TN: Hi, everyone, and welcome to The Week Ahead. I’m Tony Nash. And I’m joined by Tracy Shuchart, Nick Glinsman, and Albert Marko. Before we get started, I’d like to ask you to subscribe to our YouTube channel. It helps us a lot get visibility, and it really helps you get reminded when a new episode is out so you don’t miss anything.
We had a lot this week. We had tech earnings, some really interesting tech earnings and market activity as a result. We had crude really ripping this week. And we had bonds raging at the end of the week. So really a lot happening across sectors, NASA classes.
So let’s start with the bond market, Nick. We seem to have gotten pretty much what you mentioned on last week’s show. So can you go into kind of what’s happened and what’s happening in the bond market right now?
NG: Yeah, we’ve basically been ambushed by inflation. That’s what’s happened. You saw yesterday out of the ECB, which was a hawkish twist, possibly one of the worst press conference performances I’ve ever seen in my life. But the facts of the matter are you’ve got five, six, 7% inflation in various countries of the EU. In Lithuania, you’ve got 12%. Okay. So they are failing at their predominant original mandate, which was inflation per the Bundes back from what I’ve been told, there were several members of the MPC.
TN: Sorry. When you say she, you mean Christine Lagarde?
NG: Christine Lagarde. Several members of the NPC wanted to get moved yesterday. Not going to happen but it’s reasonable to think perhaps two hikes this year, but that will still take us to -20 basis points. It will still be negative. Okay. And then that upset the European bond markets.
You have the Bank of England go first with 25 basis points, four dissenters wanting half a point. That started to rock the bond markets a little bit. Then the press conference out of the ECB, and you basically had, goodness how many Sigma move it was in two-year bubbles, two-year German government bonds. But they basically went up over 20 basis points in a couple of hours, terminating early this morning, and they’ve stayed elevated.
And then you had this non farm payroll data. Everybody got it wrong. And the thing is, if you think this month’s figures are nonsense, well, look at the revision.
TN: Sorry, when you mentioned the NFP data, what’s important about the NFP data? Because I think some people looked at the headline employment numbers, some people looked at the wage rate. So can you tell us what’s important there?
NG: Two things. One is nobody was expecting a non farm payroll at like this. Some people will say, well, it’s always going to be revised. Well, okay, then look at the near $400,000 upward revision for December. It’s. All their data. The way it’s coming out. The BLS isn’t necessarily the best, but everything that they look at is strong labor market.
The thing that really upset the bond market was the average hourly earnings. 5.7%. To Albert’s point last week. Wage inflation is here to stay. So having been inundated with calls this morning, that really affects what the Fed… The Fed actually are fighting for their credibility.
TN: When you say wage inflation is here to stay, but it’s really, is the Fed trying to break the back of wage inflation?
NG: Well, that’s something they could impact. Right. By increasing the demand side of the market. We’ll have another idea on inflation next week. The CPI. And the lowest forecast is 7%. The highest is 7.6%. They’re not getting the favorable comparisons because oil has continued to move up. Energies continue to move up. Right.
So assuming we’ve got a seven big handle and heaven help us if we haven’t hit the 8 handle at all, this Fed has no choice. Because as you can see with the bond market, the bond market is going to do the Fed’s job if they don’t do, it.
So every time we get to what you had over the last couple of days with a bit of pullback before the ECB had a bit of pullback by some of the Fed members, the FMC members, and the yoke of, steepened.
AM: I got a question for you, Nick. Can you buy bonds if oil goes vertical? Because I think we both think that oil is going 120 north.
NG: Yeah. Well, no. I think that’s another reason why you can’t be long bonds at the moment and the bond market will adjust to it.
Everybody said the bond vigilantes are dead. When you look at the percentage moves and the price of the bonds, they’re not these are big moves going on.
TS: Nick, can you address a little bit about what will happen to the credit markets as far as the bond movement?
NG: High yield seem to do okay today, which investment grade, fine. Historically, in rising rates, you should see investment grade is somewhat better. High yield, no. High yield. I mean, if these rates are going to start moving up and some of the stuff I heard today tells me “one and done” is not going to happen. It’s going to be more and they’re not going to have a choice.
And the central banks have been basically what you had in the last seven or eight days is the central banks admitting they made a policy error or two last year. And now they’re fearful of making further policy errors. So they’ve got to be seen to do.
And again, to Albert’s point last week, clearly the Biden administration is, had their backs on the inflation front. And I suspect from what I was being told, we’re going to be quite surprised at potentially how aggressive this Fed could be. Not 50 basis points in March. That will be too quick. Too much, too quick. But May, June could well be in play because these numbers aren’t coming down. They’re just not coming down.
TN: Okay. So regardless Q2 is when things start to happen on the interest rate front, on the rates front, right?
NG: Yeah. In terms of QT, I was told the second half, beginning of the second half. Second half.
TN: So does that mean July or November?
NG: Probably means July. Okay.
AM: I honestly think it’s a possibility we do that beforehand just because fiscal cliff is coming in March.
TN: How do they go from QE to QT? Just like that? They shouldn’t be doing QE right now anyway. That’s true. It’s still doing QE. So they missed a beat there.
AM: How do you taper if you’re doing QE still? Why doesn’t anybody ask that question or answer?
TN: I ask it every week.
AM: Tony, I was on this thing with Andreas and “we’re going to taper.” I’m like, “okay, sure.” On paper. But the reality is you’re not because the QE is continuous.
TN: I don’t know. It seems to me from what Nick is saying, it may not be continuous. It seems like that has to stop because the policy position is going to stop in March. Right?
NG: Exactly. Which is why I think 25 basis points, not 50. However, I think right now, until they’ve caught up somewhat forward guidance is not going to be with clarity.
They want to get back to normal so they can be forward guiding according to what we were used to in the deflationary times. Pre-Covid. Okay.
TN: Okay. So when you say pre-Covid, you mean pre-Covid in terms of interest rate and balance sheet?
NG: Yeah. I think it’s exactly what I’ve been told this morning. They want to get back to the interest rate level that was prevalent then. They want their balance sheet back at that level.
TN: Okay.
NG: And I think that what’s happened is not only have they been shocked by inflation, they shouldn’t be shocked by the false-ty of their forecast, but I think they were shocked by the fact that we’ve got a lot of bubbles going on.
Equity market value, housing market, NFT, crude oil. Crude oil’s not a bubble. Bonds have been a bubble. So I think we’ve got some surprise. And of course, that will then feed it.
Remember I said originally, there’s either a riot in the bond market or riot in equity market.
TN: That’s right.
NG: One or the other. It started with bonds, and then we got a bit of an equity riot yesterday, which was more earnings related. But the thing about it is if you look at interest rates as gravity, zero interest rates with basically zero gravity. So you’re on the moon. Equity starts have been up here. If they’re raising rates, they’re increasing the level of gravity. News and law means that something starts to fall.
I was also told if it’s not a cascade, if it’s orderly, sort of down 20% from here, they’re okay with it.
TN: Okay. That puts us at what, 36?
NG: 35, 36,000, which is still above where we were before Covid. Right?
TN: Right.
NG: Fed will be happy with it. This put, is not, there’s no clarity on the put anymore.
TN: Okay. Is it safe to say that your view by the end of the year is sometime between now and the end of the year will hit 35, $3600?
NG: Look, the Fed. These rate markets will carry on. Any mistake by the Fed, any hesitation, it’s going to be punished by rates. And you’ve seen what’s happening, and it happens. It crosses over. You saw what happened in the European bond market as well this Thursday. Bank of England. You saw Gilts market also adjust, and that flowed through to the US market and it continued today.
TN: So do you think the ten-year crosses 2% next month?
NG: Oh, yeah. My target on the ten-year for this year is 260.
TN: Okay, great. So let’s take that and a central bank’s reaction, inflation. Tracy, we’re seeing crude prices just kind of a rocket ship. So can you talk us through that and let us know how does that contribute to next week’s CPI? And Nick mentioned CPI, but what do you expect for that as well?
TS: Well, I mean, I expect CPI to be high. However, the Fed doesn’t really include energy and housing in there and food in their metrics. So that doesn’t necessarily play into that.
That said, I think what we saw today was a lot of shorts being squeezed out of the market. That said, still expecting higher crude prices later this year into Q3.
The reason being because the global oil inventories just drew another 8 million. We have OPEC that just announced another 400K increase for next month this week. Right. And they haven’t even been able to keep up with their production increases. I mean, their compliance is over 132% right now. They just don’t have the spare capacity to move forward. US products consumed last week hit 21.6 million barrels. That’s over 2019 levels.
So globally, we’re seeing higher demand with lower supplies. So this market is likely to continue higher just because of actual supply and demand issues, which I’ve been talking about week over week.
What’s also interesting today is that nobody’s really talking about is that Saudi Aramco just announced that they’re mulling another 50 billion equity stake sale. Right. And so it would be a good thing to keep kind of oil prices higher and inventory is kind of lower. Right?
TN: Sure.
TS: There’s a lot going on in the market right now.
TN: Okay. And as we see this cold front come through different parts of the US, of course, it’s winter. But do you expect, say, Nat gas to continue to rally or say, for the next couple of weeks or next couple of months, or do you expect that we’re kind of in the zone where we’re going to be through the winter?
TS: I mean, I think we’re kind of in the zone. US nat gas prices are not as subject to the volatility or the constraints that say European nat gas prices are concerned. I mean, we have an overabundance of Nat gas, we tend to flare it.
We’re going to be this year the world’s largest exporter. Right. But that’s not necessarily going to bring I mean, you have to look at our gas prices trading at four or $5 compared to nat gas prices in Europe trading at $40. So I think we’re at a sideways market right now just because of the oversupply that we have.
What we are saying is depending on what area you live in, then natural gas prices tend to vary. So we’re looking at the North East, for example, where we have this cold front. Nat gas prices are at $11. Right. But Henry Hub, which is what everybody’s trading is still at 4 to 5. We’re going to see not gas prices rise in Texas right now because we have a cold front coming through. But again, that’s a regional market.
TN: I was just complaining about gasoline prices being $3 here in Texas earlier today, so I just can’t deal with it. Where is it where you guys are?
AM: $4.25 in Tampa.
TN: $4.25?! Holy cow. What about you, Tracy?
TS: $3.99 in the Northeast.
TN: We’re right at $3, and I can barely stand it.
Okay, let’s move along with the geopolitical stuff. So, of course, Ukraine is on everyone’s mind. And we’ll put a link to this in the show description, the video from the State Department spokesman and the AP diplomacy reporter. Albert, can you talk us through a little bit of that kind of what’s happening there and what is that doing to the situation to find a diplomatic solution?
AM: Well, simplistically, I mean, you have the Biden administration trying to amp up the rhetoric and make it more dramatic, basically to distract from what’s going on domestically in the United States from inflation and social issues, and SCOTUS picks down the list of the problems that are facing the Biden administration. That exchange was unbelievable.
You had an AP reporter just taking him to task and saying “where’s the declassified information? And his response was, “I’m telling you verbally right now, and that’s the declassified information.” That’s unbelievable. You’re not going to get away with that.
This is just more of a symptom of the ineptitude of Anthony Blinken as Secretary of State. He shouldn’t even be called “Secretary of State” anymore. It should be “Secretary of statements,” because that’s all he does. He doesn’t do anything else. And when it’s concerning with Ukraine and his method for, “diplomacy”, he’s a non factor. The United States is a non factor, right now.
They’re behind the eight ball where they keep talking up this rhetoric and putting their allies in Europe behind the black ball here. What do we do here? We need support from the United States to show strength, but realistically, we can’t stop them going into Ukraine.
TN: Okay. Yeah. So let’s just go onto a viewer question here from @SachinKunger. He says, what will happen if there is an actual escalation between Russia and Ukraine? What’s the likelihood of actual escalation and what do you think would happen? Both you and Tracy? Part of it is commodity prices. Is there an impact on commodity supply chains, meaning wheat and gas and other stuff to Europe or other places, or is that not necessarily a huge issue?
AM: Well, I believe we’re about 75% that they’re going to have some sort of incursion into Ukraine. I mean, you don’t mobilize that many people and create supply chain logistics to not do anything. That question really depends on the level of incursion. Right. Because if it’s just ten, 20,000.
TN: It goes back to Biden’s minor incursion.
AM: That’s the Pentagon’s working model. And that’s my working model. 10, 20 thousand, you go in the same place as you were before, you loot the countryside, cause a little disturbance. The west looks weak. You leave after a month or so. Right. That’s the likelihood situation.
Of course, the markets are going to freak out in day one.
TS: That’s exactly what I was going to say. I mean, obviously you’re going to see a reaction in the commodities markets just because we’ve had four years of really not much geopolitical risk factored into a lot of these markets, the agricultural markets, the energy market. Right. Pretty much after Libya had a ceasefire in 2020, all that risk premium kind of came out of at least the energy markets and the agricultural markets, we haven’t really seen a lot of geopolitical risks.
So of course, the markets will freak out. I totally agree with Albert on this point. Whether that’s going to last or not, that’s a totally different story.
TN: Yeah. I also think that we’ve had so much money supply that that cushions geopolitical risk on some level. And interest rates have been so low that that cushions geopolitical risk as well. So as we’re in this interest rate cycle and this balance sheet cycle, geopolitical risk counts for more. It’s more costly for companies, it’s more costly for countries and investors.
NG: I would add one other thing. These markets are not trading liquidly. So these moves on geopolitical risk could be exaggerated. Right?
TS: Exactly. My point is that geopolitical risk will be exaggerated at this point.
NG: You can see there’s no liquidity, right?
AM: Yeah. To be fair, any kind of event right now just makes the markets look like it’s a crypto exchange. 30% up, 30% down 300 points on the ES. That’s insane.
TN: On that, Albert, let’s move to some tech earnings and let’s talk about Facebook and Amazon. So if we want to talk about big moves, everyone kind of knows this, but can you talk us through a little bit of that? But I’m more interested in why it’s happening. Why is everyone negative on Meta and why are they positive on Amazon?
AM: Well, from my perspective, the Fed and their cohorts use maybe a dozen companies to pump the markets. Right. They’re mainly tech. Right. They’ve expanded out into a few other things, but it’s mainly tech, Facebook being one of them, Amazon being another. AMD and Google and all these guys. Right. All these big tech names.
Now when you see Facebook miss and a couple of other miss, and the markets start to get weak, there’s a point to where… This goes back to what Nick says about different levels in the markets and whatnot. He always stresses that with me. There’s a point to where if they break this level, we’re going down to 4100 or 4000 or God forbid, 3900. Right. So that lined up right when Amazon’s earnings were coming up. And I’m looking at the market and I’m looking at these levels and I’m like, there is absolutely no way they’re going to allow Amazon to miss. Whether they let them look the books or say something in guidance or whatnot. And lo and behold, what happened? Amazon beat. Did they really beat? Probably not. You know what I mean? Yeah. And then Pinterest that nobody cares about beats and then Snapchat. I don’t even know what the hell why they’re a company. They beat unbelievably. I think they were up like 50, 60% and after hours. Right.
So now they have their juice to pump the markets back up to 45, 30 or even maybe 4600 next week before the fiscal cliff becomes a problem.
TN: Okay.
TS: You also have to look at the bond market. Right? I mean, the more the ten-year tanks, the more that’s going to drag on tech.
TN: Right. So what does that tell us about the next couple of weeks, specifically next week? But the next couple of weeks? As we’ve seen, say Meta come down, Facebook come down. But we’ve seen these other things really rally. Where is tech as a sector?
AM: It’s a pump sector. That’s all it is right now. There’s nothing really behind it. It’s built on zero rates. Well, we know we’re going to get rate heights. So what are you betting on at the moment?
TN: Right. And that’s the basis of my question. If tech is a deflation play and we’re in inflationary environment and we’re going to have rate rises, what does that mean for tech in the near term? So are we at the kind of tail end of tech? That’s my real question.
NG: We’re at the tail end whilst we have to see these interest rate rises come through. And actually, you don’t necessarily have to see the central banks officially raise because if they don’t, the bond markets are… And then there’ll be a catch up. This is the problem. If they Underperform in their credibility catch up because they’ve already implicitly admitted their errors of policy, bond market will adjust and they have to catch up again.
Now, if they do something surprising on the rate side. So yesterday was an ECB shock, right? Today, there was nothing to do with the Fed. It was the data. Well, we’ve got that CPI date next week. Right. That’s going to be very interesting because I agree with Tracy. Core is at a certain level which is still too high. But it’s the full Monty, the full CPI that labor uses when they’re discussing their wage claims. Practically, that’s the behavior of economy.
TN: CPI is the single biggest event next week. Is that fair to say?
TS, AM, NG: Yes.
TN: Okay, so let’s look at that. What if it is, say seven, which is kind of the expectation, I guess the lower bound of expectation kind of. Right? So let’s say it’s seven or let’s say it’s even five. What does that mean for us? Does that mean continued, easy Fed? Or does that mean you have the same assumptions and that’s just kind of a milestone or something that we’re passing along the way to higher rates anyway?
NG: We’re on the way to higher rates anyway.
TN: Okay.
TS: I mean, if it’s five, the market, temporarily if it’s five, the market temporarily will probably rally because that lessens the effect that Fed is going to raise. Right. That percentage will probably go down. But that’s a temporary. If we’re just talking about market reaction on the data release, I don’t really see that happening. I don’t see 5% coming in. I don’t see that a possibility.
TN: But then let’s look at the other side. What if it’s eight and a half? What happens then?
NG: Well, then in the old days, it would have been an inter meeting rate hike.
TN: Okay. Right.
NG: And the bond market will just, it’ll be another riot. Even if the core is steady. Big figure eight on the full CPI? that would shock a few people. Like people were shocked today with the non- farm payroll data.
Literally, if you could watch Bloomberg TV, it was like. They couldn’t believe what was going on.
TN: So we’re in that place in the market where the porridge has to be just right. Is that fair to say?
TS: I think we’re in for volatility. Right? I mean, we’ve been experiencing volatility for the last month or so. I think this will continue until March, until we have some resolution of whether the Fed is going to raise rates or not.
In between, it’s going to be volatile because everybody’s looking at intermittent data saying, does this mean the Fed is going to raise rates? Does this mean the Fed is going to look do you know what I mean? So I think we’re in that pushbull thing, and I think that volatility will continue into next week. I think that volatility will continue until actually the March meeting, until we get some resolution on whether the Fed is going to raise rates and by how much.
TN: Okay. So if I just a couple of things for you to agree or disagree with, just short yes, no. Next week volatility in equities with downside bias, you agree or disagree?
AM: Disagree.
TN: Disagree. Nick, you agree or disagree? Downside bias, you agree. Tracy, equities, agree or disagree?
TS: I think it depends on the sector. Okay. Give me one or two. I think we’ll see, my downside bias is in tech and then obviously, yes, because it’s heavy tech. Right. And so I think we see sideways markets in the Dow and the Russell.
TN: Okay, then let’s do the same exercise for commodities. I know there’s a lot of companies out there, but generally commodities. Choppy with an upside bias. Agree or disagree?
TS, AM: Agreed.
NG: That’s a dollar call.
TN: Okay. Explain that.
NG: Yesterday because of the dollar’s weakness against the Euro and the Dixie, I tend to agree with you. I think it’s going to be choppy until we see the color of the CPI number.
TN: Okay. Very good. Anything else to add for the week ahead?
NG: Just keep your eyes on the bond market. My mantra.
TN: Very good. Okay.
TS: Keep your eyes on B come.
TN: Thanks guys. Thanks very much. Have a great weekend. And have a great week ahead.
TS: Thank you.
TN: I don’t know the left side of my screen is the pineapple people.
AM: We’re going to call Nick Luke for the episode today.
NG: The professional version of Luke.
AM: Okay. Anyways, I’m done joking. Let’s get this thing on the road. Okay.
This podcast from BBC Business Matters discussed how rich countries are recovering faster than expected — and is it for real based on data? How about the world’s billionaires suggesting Americans to pay more taxes, is it fair? Also discussed are the NFTs or non-fungible tokens — do they have values or are these just a fad? Lastly, how the workplace changed since the 1980s in terms of safety and gender equality?
The IMF says that the rich world is recovering faster than expected from the downturn resulting from the pandemic. But what about the developing world? Jubilee USA campaigns for debt relief for developing countries – we speak to its executive director, Eric Le Compte.
And in a world struggling to pull itself out of a pandemic, lockdowns and recession, why are there quite so many billionaires? We hear from Kerry Dolan, Assistant Managing Editor of Wealth at Forbes about their latest rich list.
Credit Suisse replaced two key executives and cut bonuses amid the fallout from two major business relationships; Peter Hody from Finnews.com in Zurich analyses what went wrong. And we’re joined throughout the programme by Mehmal Sarfraz, journalist and co-founder The Current in Lahore, Pakistan; we’re also joined by Tony Nash, chief economist at Complete Intelligence in Houston Texas.
Show Notes
JR: OK, well, let’s get the picture from the economy, which is going to swell, it would seem, according to the IMF, over the next year or so Tony. How are things in Texas?
TN: You know what’s interesting about the about Pakistan to kind of follow on what I said? What I find interesting about these numbers is you really have to average out 2019, 2020 and 2021 to really see how a country is doing. And so if you average out Pakistan for 19, 20, 21, there’s a 1% average growth rate that’s better than almost every other OECD country. The only country in Europe that actually shows growth over that period is the Netherlands. Germany, France, U.K., Italy and so on, they’re all negative average for the last three years. So for the U.S., it’s just over 1% average for the last three or so. So this may look like stellar growth, but it’s not because it’s using what’s called a base effect, meaning the U.S. economy is estimated to decline 3.5% in 2020. So a 5.1% growth rate on top of a 3.4% decline really is not stellar. So we’re struggling to get back to 2019 levels. And the message I would take away from here is countries are struggling to get back to 2019. Much of Europe will not be back at 2019 levels by the end of 2021.
JR: Tony, is Credit Suisse a typical bank, do you think, or a typical bank in the circumstances?
TN: I think they’re in a typical bank that got caught doing things that banks do pretty regularly. We have to be aware that these banks have risk management teams who look at the investments and evaluate how much of their capital is at risk when they make investments. I don’t doubt that banks make very risky risk management decisions on a regular basis. Credit Suisse. This problem is they didn’t get out in time. There were other banks that had built capital who got out earlier. So they made similar bets, but they got out of the trade earlier than Credit Suisse did.
JR: Do you think even Mr. Bezos thinking perhaps he should be doing a bit more taxes at a bit of a relief to us?
TN: Well, it’s it’s interesting. Nothing is stopping billionaires from paying more money to the Internal Revenue Service in the U.S. So if they want to pay more money, if companies want to pay more money, they’re welcome at any time to pay more money. So if Bezos personally or through Amazon wants to pay more money to the U.S. Treasury, they’re welcome to do that. There’s nothing in law that stopping them from contributing more to the U.S. Treasury.
JR: So I suppose in many ways this story is a kind of a sort of reflection of our earlier story, which is really about sort of rich rich countries and poor countries and how they’re coming out of this pandemic and the problems of inequality and whether it causes resentment, which we talked about in that report. Do you see resentment over this, do you think, in the United States?
TN: Well, I do. Warren Buffett has said the same. Americans should pay more tax. Your average middle class or higher American who here, a billionaire, say that people should be paying more tax, people get really resentful about it because, again, everyone knows that if someone wants to pay more tax, they can just write the check or send the wire and do more. So I think it is the the resentment is growing. The gains in equity markets are strange. They’re at strange highs. Central banks are enabling that. And the people who gain disproportionately from that are the ultra wealthy, not just the wealthy, but the ultra wealthy.
JR: Tony, when I listen to that report, I kept on thinking of tulips for some reason or another, and I kept thinking of bubbles. Do you feel the same way or are you convinced?
TN: It really depends on what you want to do with it. So if you actually own that image and you can license it and make money off of that image, then fine. That’s really interesting. Or if you want to own that image for the inherent value of that of owning that image like, let’s say a digital Mona Lisa, that’s fine. But I’m not sure that the kind of demand for that is there, meaning my kids of 19 year old twins, they’ll go out and copy images or whatever and throw them into presentations. I’ll do the same. Actually, I don’t know that there is an appreciation of the value of a digital image. And this is really the problem, right? When you have physical artwork, there is limited supply. When you have a digital image that can just be copied and pasted and then you have infinite number of those images. It’s difficult because there’s never a tangible, supply constrained number of those images, if that makes sense. So I I’m like you when I hear it. I think this doesn’t really make sense unless you’re using it to license. Let’s say there’s a logo for a company like Amazon and somebody owns that intangible property. How much is that logo image worth that?
JR: OK, so it’s actually quite close to a currency really isn’t it, or it’s close to an intangible thing like sort of a money, a unit of money, a unit of cash.
TN: Well, there’s a difference between money and an asset, right. If you hold let’s say gold, gold is really an asset. You don’t go down to your corner shop and spend gold. In the crypto world, these things aren’t really currencies because you can’t really spend them freely. Of course, you can always barter gold for something. You can always barter a crypto asset for something, but it’s not readily accepted in many, many places. So these things are really assets that you hold onto and wait for a buyer who appreciates the asset more than you to buy it.
You’re not going out and buying your groceries or a new car or anything with that asset. You can’t do that with this artwork. You can’t spend it. So it’s questionable. I’m not saying it’s nothing, but it’s questionable. It’s not really the market fit. I don’t really understand it. Maybe this is genius, but it just doesn’t seem like it right now.
JR: Tony, thanks very much indeed. I still keep on thinking of tulips anyway. Tony, I was just going to ask you whether you had a lot of similar experience, but experience of unpleasantness, London.
TN: Sure. Absolutely. In my 20s, I was with a retailer in their headquarters and and then again later in my career. You know, this is it’s not anything that is rare. I don’t think. Well, maybe it is more rare now, but it’s terrible for everyone involved.
JR: And it doesn’t seem to go away even in the virtual world. That’s where we got time for on business matters. Thank you very much indeed for listening. And thank you, Tony. Thank you so much for being my guest on Business Matters. Goodbye.
Tony Nash joins Rahul Tandon at the BBC Business Matters podcast and they discussed Joe Biden’s economic plans like the $15 minimum wage and stimulus packages. They also discussed the Covid vaccine supply chain and why some countries are getting them last. Also, what’s the future of Netflix, and lastly, what is Trump’s legacy?
US president-elect Biden sets covid-19 stimulus package as early priority for presidency. As Janet Yellan begins her confirmation hearing as treasury secretary we look ahead at the incoming administration’s economic plans – and we look back at President Donald Trumps four years in office, as he prepares to move out of the White House. Also in the programme amid concerns that people living in poorer countries may have to wait months or years to access a coronavirus vaccine, we find out more from Mesfin Teklu Tessema, head of the health unit at the International Rescue Committee. Plus, Netflix reveal blockbuster results; is it one firm that’s been able to capitalise from the pandemic?
Show Notes
RT: We heard from Joe Biden there before using the word “healing.” Is that going to be what he has to do to heal American society because it’s so divided at the moment?
TN: That’s required. Healing takes place on both sides. A lot of the talk on the Democrat side has been about Republicans retreating rather than Democrats calming down the venom they’ve had toward Trump over the last four years. Healing requires Democrats to dial down their attacks on Republicans as much as Republicans accommodating the new administration. It really is, something that I hope the new administration can tell their own party to to stop the vicious attacks come to you.
RT: Big problems need big solutions. Have you been impressed by what you’ve heard from the Biden administration and Janet Yellen so far?
TN: Really, all I’m hearing is that they’re going to throw money at the problem, which is fine. It’s been months. Americans needed more money from D.C. since July. But I’m not seeing much more sophisticated solution than throwing money at the problem. It’s a start. But I don’t know that we necessarily have a direction.
RT: What sort of what sort of policies would you like to see being put into place by to help?
TN: Policies like this 15 dollar minimum wage, if you’re in New York or San Francisco, great. That’s fantastic. Those are expensive cities. But if you’re in Texas where I live, it doesn’t make sense. It’s great that people get a $15 minimum wage, but we just don’t have the cost of living that New York or San Francisco have. Those types of ideas are fine, but we need more detail around indexing that cost of living or indexing that minimum wage by cost of living.
This is why things like minimum wage has typically been left up to the states. The federal minimum wage is incredibly low because those decisions are usually left out to the states. I feel like we have a lot of promises for more money. And again, that’s great. Americans need that really bad.
I run a small company. The PPP has been long overdue. The House of Representatives held that up for six months. We need it and we’re just finishing our application today. But it’s not enough and it’s not in time.
My biggest worry is corruption. Will that money end up in the hands of people who don’t really need it? Will they end up in the hands of politically well-connected organizations or individuals? We saw that last time around with the PPP.
RT: But there are things that can be put in place to stop that. And there is no doubt that many Americans would need that money. That money needs to be spent on infrastructure.
This is a huge problem, isn’t it? We heard from Fatima in that piece there talking about how a health worker in South Africa may well be inoculated after a healthy person in Germany. That cannot be right. Why have we not been able to put an effective system in place here?
TN: There are two issues here. The first that I find incredibly frustrating is these firms have received huge subsidies to develop these vaccines. They’re effectively already paid for billions of dollars. For these companies getting non-profit prices for this, it’s just unconscionable and it’s just unbelievable.
The other issue, though, is a positive issue. The supply chains are in place and there are abilities for companies to get vaccines, not just to South Africa. Some of the innovations that have happened around vaccine supply chains over the past few years have allowed people to monitor the temperature and the quality of those vaccines through the vaccine supply chain. There’s a company here in my town called Blue Maestro that actually has chipsets that flow with those vaccines themselves so that the people who are getting them don’t have to worry.
RT: Those changes are important, Tony, but still, people would be listening to this and thinking, why will some countries not get it till 2022 or is that just the nature of the world we live in?
TN: I can’t believe it’s the nature of the world we live in. It’s the nature of financing the scale of the build out to the vaccine. But again, these vaccine makers have already received billions of dollars, largely from Western countries, mostly from OECD countries, which is on some level one and the same. But Japan, Singapore, other places have given huge amounts of money. China have given huge amounts of money to vaccine makers. The money is there. The vaccines are paid for. So there should be more allocation to these countries. That’s without a doubt.
RT: Traditional TV for my kids, streaming is actually traditional TV. Do you have Netflix? What are you watching? Are you still watching?
TN: I do. My kids watch it a lot more than I do. What she said about the sports content on Netflix is a real issue for them. Hulu and Amazon have much better offerings there. Netflix is in a weird position where they don’t necessarily have the appeal that a Disney plus has, which has had stellar growth. But they don’t have things like live sports that some of the other guys do.
83% of their subscriber growth came from outside of the U.S. So it tells me that their market in the U.S. only has so much room to grow. There is a global opportunity, and that’s great. But until they can adjust their offerings to include some more compelling content, both for young and for people in their prime who want to watch sports, I think their opportunity is limited in the U.S.
RT: One thing that President Trump said when he was coming into power was he was going to shake up the existing political system. He suddenly done that, hasn’t he?
TN: He has and some of the things that sound obvious, like he’s the first president since the 1970s who has not started a new war, that’s a big deal. It really is a blow to the military industrial complex. And Americans appreciate that. Not starting new wars is a huge benefit for the world, but it’s also a huge benefit for Americans who send their kids overseas to fight these things.
RT: When people like you, economists look back at Donald Trump’s legacy, what’s it going to be in a few years time?
TN: He certainly didn’t fit in in D.C. He was somebody who really fit in more outside of D.C. and that’s what he promised. He brought back more hostages from overseas than any other U.S. president. And so those are the kind of things that really hit the heartland and really hit normal, average American citizens outside of the big major cities of New York and L.A. and D.C. and so on and so forth.
RT: Has he fundamentally changed American society?
TN: What Trump has done is forced people to show their true colors. It’s brought out the worst in people and it’s also brought out the best in people. What’s highlighted in media is often the worst part, but there have been a lot of very positive things that have happened in the U.S. over the last four years.
Breaking from the status quo and the bureaucracy in Washington and in government doesn’t really like that very much. But I think it’s been very positive. There are 74 million people in the U.S., more than half the voting population that actually appreciate Trump. So what the U.S. is fed and what international news media feed people about Trump being an idiot, being a buffoon and all this other stuff, half of the U.S. voting population doesn’t believe that.
Our CEO and founder Tony Nash joins Jimmy Robertson at the BBC for Business Matters podcast where they discussed about the importance of Tesla in the stock market and in the auto industry. What is the additional factor that really helps Tesla justify its valuation? Also discussed are the protests in Ukraine dominated by women, community theaters in COVID era, and how the future of work from home looks like.
The chief and other police leaders step down following accusations of cover-up in the Daniel Prude case, a black man who was hooded and restrained during an arrest. Michael Wilson is a reporter at the New York Times who’s been covering the story.
Also in the programme electric car company Tesla’s shares tumble almost 20 percent after it failed to be included in the S&P 500 index. Richard Waters, the Financial Times West Coast Editor in San Francisco explains. And English composer and theatre impresario Andrew Lloyd Webber warns the future of theatre is on a knife edge.
Show Notes
JR: Tony, is this getting any coverage at all in the U.S.?
TN: Very little, actually. There’s a great story of three leading women in Ukraine with the Tikhanovskaya election, I think what’s happening with Kolesnikova is pretty amazing and the fact that she’s staying becauseTikhanovskaya actually left the country, of course. So there is such passion here about Belarus that is pretty incredible. And one has to wonder, can they be determined enough to see this through? I think they can. And would it have other effects on other countries in the region? I think it’s possible actually. If they can have a peaceful protest, which is amazing to bring this change about, I think it’s possible that this could happen to other countries in the region.
JR: The situation does seem to be very much on a knife edge. I mean, everyone is very worried about what how Russia is going to react and also, of course, how the West is going to react as well. But it was just a small comment which was made about the fact that women have been very prominent in this particular line of protest, basically as opposition leaders, but also actually out on the streets. Now, just trying to think whether I’ve known of any other protests where you’ve had women dominating the protests. I think you perhaps probably in Argentina where you seen you remember the mothers who protested about the disappeared children. But I can’t think of many other places. I’m not quite sure why women dominate this particular protest.
TN: Was it in Georgia? I think like 20 years ago, what was her name? But I know that former Soviet republics have had women protest leaders and female prime ministers. And so I do think that that it’s not I’ll try to dig up her name, but it’s not unprecedented. But I think the determination is because it is a woman who was elected and then the protest leaders are also women. I think it’s very amazing.
JR: Well, Tesla’s importance, but to two things. One, its importance to the stock market, to the Nasdaq and how it is a kind of bellwether within the actual tech stocks and the other is its importance within the auto industry. Let’s just talk about, of course, two things are connected, but let’s just talk about its importance in on the stock market. I mean, it really is one of the reasons why the stock market has fallen. But Nasdaq I mean, I don’t know if people have been following this, but Nasdaq has fallen in the last three trading days, has fallen 10 percent. I mean, we’re talking about a proper correction here. A lot of that was Tesla, wasn’t it?
TN: It was and just today, Tesla fell 21 percent in value. So if we looked at Tesla last week, the valuation was around 1,100 times earnings. Today, the value is 855 times earnings. So it’s still incredibly highly valued. You know, valuations range between, say, 15 and 25 times earnings, maybe more 30, 35. But Tesla is trading at, 100, more than 100, almost 200 times earnings of a car company. And so it is incredibly highly valued. Whether it’s overvalued or not, that depends on what the market says. But just to put it in perspective, Tesla makes about 400,000 vehicles a year. Volkswagen makes almost 11 million. Yet Tesla is valued much more highly than Volkswagen is.
JR: But we are talking about potential. And I mean always when you’re buying a stock, you’re not looking really at what it has done. You’re looking at what it’s going to do. And that is why people have been buying it.
TN: Is it overvalued?
JR: I know you. The answer is I don’t know. But I mean, it’s over. But it’s…
TN: It’s really interesting that the founder of Great Wall Motors in China, I think that’s who it was, once said that a car is nothing more than four wheels and two sofas. And, you know, he really helped build the Chinese auto industry on the back of that philosophy. So, Tesla is four wheels in two sofas with some really interesting interfaces and monitors. And, of course, it has an electric engine, these sorts of things. But the real question is, are they selling units or are they selling technologies?
Because if you’re selling, let’s say, a piece of software, Apple sells the iPhone, but they also sell a lot of software around that. OK, is Tesla pushing the number of units to be able to sell the amount of software it needs to sell to justify the valuation it has? So if you take that comparison to, say, Tesla is equivalent to, say, an Apple, they just don’t have the number of units in the market to push the software they would need in my mind to justify the valuation. That’s nothing against Tesla. I just think they need more units in the market to be able to push that software technology story.
JR: You’re talking about the software technology that surrounds the car you mean, that sort of self-driving stuff or whatever. It’s going to be electronics, not all that.
TN: That’s right. Because you would pay subscription fees and other things on that software and the upgrades and the safety and other things. Right. Because without that, it’s just four wheels and two sofas. Right. It’s a pretty cool four wheels and two sofas. But for the most part, it’s four wheels that gets you around from place to place. So what is that additional factor that really helps Tesla justify its valuation?
They’ve got a very outspoken CEO. They do a lot of cool stuff. It’s electric, but a lot of companies have electric car technology now. So they’re not unique.
JR: So what you’re saying also, I mean, the question which I asked Richard right at the end was about whether it’s going to be tech companies are going to be buying cars from the future or whether it’s going to be the likes of Volkswagen and whether Volkswagen and GM and the rest of them can actually turn themselves around and become tech companies. I suppose that really is the question.
TN: Well, I guess the question is, is that tech modular enough for them to buy and integrate into their manufacturing scale? And so, you know, can they buy the electronic displays? Can they buy and build the electric engine technology? Can they have their own, say, autopilot or self-driving software?
I think it’s possible for all of them to do it, especially when you look at a Volkswagen or something like that. So, Tesla always has to be on the edge. And I don’t have a position in Tesla. I don’t have anything for or against Tesla. I just think that as a technology company, they need to make sure that they’re so far ahead of every other auto company. And if they aren’t, then people are going to start questioning their valuation.
JR: Are they that far ahead? We don’t know yet. You know,
TN: I think they probably are far ahead in some areas. But for the most part, most drivers really are not that discerning around the technology. Most people don’t have the newest iPhone. They have an iPhone. Most people don’t have the newest, you know, fill in the blank. They have something that works. And so, you know, the real question is, can Tesla… Well, they’ve already cashed in, as your story said, they pulled five billion dollars out of the market last week. Right. So they’re cashing in on this and good for them. That’s a good management decision for them to look at a share price that’s really highly valued and pull some money out. That’s a great management decision. And so the real question is, can they continue to keep their valuation up?
I guess a precursor question is to that is what is keeping their valuation up? And then they have to look at do they have that much of a technology lead that people care about to be able to justify that, let’s say, high valuation? And I think those are really, really important questions. No doubt they have cool technology, but cool technology is not necessarily the most useful technology, especially if it’s not resulting in unit sales. Again, Tesla sells 400,000 units. Volkswagen sells 11 million units, yet Tesla is valued much higher.
JB: In Texas. I gather you have you managed to buy into it? You have been to the theater?
TN: Yes, I’ve been to the theater twice, two times over the past month.
JB: Fantastic. What?…
TN: My son is an actor and he acts in community theater and it was great to be in the theater. But there were social distancing and all sorts of considerations wearing masks, these sorts of things. People sat in family groups. There had to be distance between family groups, that sort of thing. So the financial issues that were discussed at length, you know, it’s the same thing with community theater here. I think they could only sell, say, 30 percent of the tickets that they would normally sell. So, you know, it’s a great performance on a really creative budget. And so but it is amazing to get out, be with people, see people, be at the theater. It’s fantastic.
JR: Can they can they survive as a community? I mean, are they able to make enough money to keep going?
TN: They can. In some cases, people bought tickets and chose not to attend so that they could help the theater out while still having distance, so that’s one way to do it. The theater had some additional things you could buy, that sort of thing, but I think they could do it. I think they could do it, but the productions would probably have to be a bit smaller. And so, you know, anyway, I think they could continue to do it, but obviously wouldn’t be preferable.
JR: Sort of One-Man shows and things like that. Perhaps that one person shows.
TN: Know this was actually a pretty big cast, but it’s not paid. This is community. So, you know, it’s not paid. So they can you know, they have different budget constraints than than, say, a professional theater.
JR: Are they getting any government, central, regional, state health or anything like that?
TN: Theater group is not. This was all done through personal kind of buying of things and donations and other things.
JR: I find this really interesting about if we’re all going to change the way we work, we’re going to be working at home. We’re not going to be working so much in big cities. How is the money going to be spent now? It’s not going to be spent on sandwiches and on trains and all cars, even perhaps. How do you think we’re going to spend that money?
TN: Amazon. I mean, I don’t know, it’s like food delivery in Amazon. I just I mean, you know, if if people are at home and they’re eating from home, it’s great to have that, you know, homemade sandwich or whatever, you know, on a regular basis. But they’re going to order out or go out locally or something like that. So it’s great to save more money, but I think that’s relatively short term. I think over time, you know, people spend what they make. That’s just what happens. You spend what comes in. I mean, you set some aside from savings, but once you hit that threshold, you spend what you make so people will find ways to spend it. I think they’ll be home delivery. I think there’ll be other things where people just eat better stuff for lunch at home.
JR: I think the other thing is and I think this is probably most worrying side of it, is the people who continue to work will actually do very well and actually be saving money and spending money, making a lot of money. And the people who don’t are going to be very badly off and we’re going to have quite a wealth divide as a result.
TN: No, it’s terrible. And I think the, you know, the sandwich shops and other things. So my company, we haven’t closed our office through COVID. We live in a county where it wasn’t mandated. And so we’ve tried to patronize the shops around us. But it’s been hard. Many of them have been closed. And but we’ve been trying to go to them, not really to splash out, but just to support people. But in some cases, you know, they were just doing the best they could to serve us.
JR: OK, Tony Nash in Houston, Texas, thank you very much indeed for joining me here on Business Matters has been a pleasure to have you here. And we’ll be back again tomorrow with business matters to join us in.
Countries and governments around the world are starting to feel the strain of coronavirus lockdown, with some showing signs of easing up restrictions. But the World Health Organisation is urging serious care, saying it cannot be done in a hurry.
Also in the programme, the EU competition commissioner Margrethe Vestager has advised governments to prevent companies being taken over by Chinese firms.
Amazon’s share price surged after the company announced it would take on another 75,000 workers amidst increased demand, after already hiring some 100,000. Professor Scott Galloway at the New York University Stern School of Business discusses how we should interpret the move.
The world’s oil producers under OPEC and allies have agreed a record oil deal that will slash global output by about 10%. Paul Hickin, Associate Director at Platts, explains what this means for the future of oil prices.
Plus, with the internet full of memes and videos to help us get through uncertain times, the BBC’s Vivienne Nunis speaks to some of those creating internet content to make us smile during the long lockdown days. All through the show we’ll be joined by Rachel Cartland, author in Hong Kong and Tony Nash, chief economist at Complete Intelligence in Houston, Texas.
BBC: What kind of restrictions are you subject to in Houston?
TN: Really it’s just mass gatherings, and there is a state home order. There are a lot of people outside. There are exceptions to essential businesses. And so a number of people going to work. Not many people to be honest. I’ve never seen a lot of my neighbors outside, where they were out all the time.
BBC: That’s a positive of it, isn’t it? WHere you are, the restrictions aren’t as tight as they are in California and New York
TN: Texas has a pretty low death rate. So haven’t really put… there are restrictions. Dallas is on lockdown. Houston is on lockdown but not as stringent as Dallas. San Antonio and Austins are on lockdowns. But some people do get out of work. Some people, not a lot.
BBC: Is there a talk in Texas when it will be lifted given that the state is not as badly affected as other parts of America?
TN: The governor said that this week, he would announce when he would put an order together to get people back to work. I think you’re starting to see a real movement in the US. People are tired of being at home, they’re tired of being worried about their income, claiming unempoyment, seeing their friends being laid off or their friends claiming unemployment. It’s a scary time for people and regardless of the fiscal stimulus that’s coming out from DC, people just want to work.
BBC: Are people are scared that if they won’t catch the virus, their loved one will?
TN: They are. People are nervous about it. Some people are wearing masks. But I think what we’ve seen generally is it’s largely older people or people with tertiary, secondary conditions. It’s a worry. But people are adults and they can take precautions.
I think part of what may come about is a reverse action where people who are at risk may be advised to stay in and take precautions, while people who want to go to work are adivsed to go to work and take precatutions. What’s the difference in Texas is that we don’t have mass transit like New York does or San Francisco or some of the other places that are affected. Although some of those don’t like Seattle doesn’t have that mass transit. We don’t have those things here because we’re not densely populated. There is not much intermingling as you would get in London, Hong Kong, Singapore, or Beijing.
BBC: Do you see any evidence of this kind of thing is already happening or is this a fair of China kind of xenophobia in a way?
TN: I think there’s truth on both sides. It’s taking awhile to figure it out.
BBC: Should governments be buying stakes in companies whether that be in Europe, US, or whatever to make them American, or French, British or whatever?
TN: It depends on the company. If you look back in the Piraeus supporting Greece or the hydroelectric company in Portugal, Europoean governments were happy to sell those that 10 years ago. Was that the right thing to do? I’m not sure. But they’re quite happy to sell at that time. But now that the nationalistic environment has changed, I think European countries are being a bit more protectionists. So should Chinese capital be allowed to come in to buy European companies, it depends on how strategic those companies are to Europe’s economy and to Europe’s stake. If they are deemed strategically important, then they should be protected. If not they are not, then they shouldn’t be allowed to come in and buy.
BBC: Do you think this is the moment where 3D printing will enter the public conciousness and end up with people buying their own printers?
TN: It’s possible. I think it’s probably so early. But I think what’s interesting about this is the distributed nature of this. You can do small production run, it’s distributed, so you can make exactly what you want. The concern I have is affordability. The people with 3D printers, so if they have the funds, do it.
BBC: How is the state being affected by this plunge in oil?
TN: That’s pretty terrible. Houston is one fo the global centers for energy and a lot of the leading gas firms here are laying people off. It’s pretty terrible the way it’s affecting Texas.
BBC: You still work in the office. I’m broadcasting from my bedroom. Do you think we could see a change in a way people do work? Companies might decide they don’t need much office space because people can work from home?
TN: No. I think it’s nice to talk about this. I don’t think people are going to do less leisure travel. I don’t think companies are gonna have their staff travel less or people are gonna go to the office less.
We’re human beings. Once this is passed, it’s going to take some time for people to normalize. Things are going to go back because we like what we have. We like to take a holiday somewhere, we like to see the grandparents in another state. Things aren’t gonna change that much.
This economic downturn, it’s a government-mandated downturn. It’s not a market failure by anybody else. It’s government-mandated, so once the government mandates that we can go back to work and resume our life, we go back to it and we do what we do for the most part.
Our baseline expectation is that we’ll see deflation over the next year, and it’s already starting in China if you look at real estate prices and car prices because people don’t have as much money as they have a few months ago.
It’s a global phenomenon. We will see deflation in 2020. That is a fact. It’s a problematic fact. And it’s gonna force airline tickets, hotels, and other folks to lower their prices. Deflation isn’t just lowering prices, but it will force that, because people will have less money for a period of time.
BBC: What do you make about this concern about the role of Amazon? Amazon is not really having a good time. It’s stuck, closing almost at record level.
TN: I think, you know Amazon bought a company Pill Pack a few years ago. They already have health data on a lot of people. If there was a concern, why people didn’t raise it when we were in a different economic position? I think many people are just happy earning on Amazon stock and subscribing to Prime at that time.
It’s concerning, but I don’t understand how this is different because it’s all health data on Americans. We all know that Amazon, Google, all these guys are going to monetize the data that they have on us. I’m not saying I love it and that I am perfectly at peace with it. It’s just strange that people wouldn’t be upset with their of Pill Pack a few years ago. But now they’re upset that Amazon is going to build organically facilities. And then there’s Bill Gates saying that he’s doing testing or planning to do the same stuff. Why are we comfortable with these corporate titans doing this stuff in one form when it’s as a foundation and not when it’s another form. I think it’s a little bit protective.
