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The Week Ahead – 11 Apr 2022

As a start, we looked at the Friday’s trading session and what it means. Is this a bullish market?

We’ve made a few recommendations over the past couple of months. We hope you’ve been paying attention specially on $IPI (Intrepit Potash) and $NTR (Nutrien).

We’ve talked about the tumbling lumber markets in recent weeks. What are Sam and Albert’s current thinking on lumber as we’re looking at $LB lumber futures. Sam talked about housing last month. We looked at $XHB, the home builders ETF. How about the rates and housing? We’ve seen that homebuilders are getting hit with expected rate rises. What is the impact of this on the mortgage market, housing inventory, etc?

Shanghai has been closed for a few weeks now and the largest port in the world won’t open for about another week. How can the second largest economy continue to close when the West has already accepted Covid as endemic? How can manufacturers rely on China as a manufacturing center if they’re unreliable?

For the week ahead, we talked about the earnings season, their portfolios, and Albert talked about Chinese equities for months, etc. Is now the time to look at KWEB, which he discussed for some time?

We’ve got CPI out on Tuesday and is expected at around 7.9% and Retail sales on Friday, which is expected at around 0.3%. Inflation seems unstoppable and consumers seem to be getting tired of spending. Sam explains on this.

Key themes from last week

  1. Friday trading session
  2. Don’t say we didn’t warn you
  3. Rates and housing (Tuna & Caviar)
  4. China’s shutdown

Key themes for the Week Ahead

  1. Earnings season expectations
  2. Near-term equity portfolios
  3. CPI (Tuesday), expected 7.9%

This is the 14th 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.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon

Listen to the podcast on Spotify:

https://open.spotify.com/episode/4uQUT91ocSlxs0sdNR7Vt6?si=3ba0d0bb07724b9f

Transcript

TN: Hi, guys, and welcome to The Week Ahead. My name is Tony Nash. I’ve got Albert Marco and Sam Rines with us. Tracy is not able to join us today. Before we get started, if you don’t mind, could you please like and subscribe. That would help us out. And we’ll let you know every time a new episode is up and running.

This past week we saw a lot, but I think the most interesting thing or one of the most recent interesting things is Friday’s trading. We’re going to start talking about the market action on Friday, and then we’re going to get into a couple of things that we told you about trades that if you were paying attention, you would have seen. We’re actually going to go into rates and housing, and Sam’s going to talk a little bit about tuna and Caviar, that discussion from the Fed speech earlier this week. And then we’re going to talk about China’s shutdown, which seems to be getting worse by the hour. So first let’s get into the Friday trading session, guys. What are some of the things you saw on Friday?

AM: Well, from my perspective, the market is acting like crypto. I mean, we’re seeing interday moves on some of these equities, like 5% up and down. It’s a little bit silly. And you wonder if it’s like light volume, if it’s market manipulation by the Fed. It’s just uncanny. I’ve never seen anything like this before. And obviously the market is weak and we’ve talked about black clouds coming over the market and what’s going on. But I don’t see anything any catalyst that would say that this is the bullish market at all. So we’re waiting for multiple numbers of CPI, retail and whatnot. But for me, it’s just like everybody is on pause waiting to see which way this market goes before they take action.

TN: So a couple of weeks ago, we saw a lot of money move into equities. Right? So that money moved in. It’s just parking and waiting. Is that what’s happening?

AM: Yeah, I assume so. The Fed, as it just ups the rates, forces more money to move into the US market, which is actually a brilliant move. You know, this is what we’re seeing. A lot of money here, not knowing what to do at the moment.

SR: To Albert’s point, there’s a lot of money that’s moved in here, but it’s moved into some pretty passive areas that it’s just not moving much in terms of the overall market. You look at fixed income, right? Lots of money moving in there, short into the curb, et cetera, et cetera. I think that’s some of the more interesting stuff as well. But there’s also this weird thing going on where equal weight is outperforming the market cap weight. And has been for some time now, particularly over the last week. If you look yesterday, S&P closed in the red, but if you were equal weighted, close green and it closed green on a non trivial basis, and it was 35 basis points, something like that.

That deviation between market that was led by predominantly tech and only tech, to a market that’s led by other sectors in general is something I think under the surface that paying attention to it can be something that at least can make some money in the near term.

TN: Including Crypto Walmart, which we’ve seen over the past week as well. So we’ll talk about retail later in the show.

Okay. So we had as a group talked about some calls over the past couple of months. Some of those were calls earlier, but let’s get into those just to walk through. Albert, you and Tracy had talked about Intrepid Potash. She talked about Nutrien. We’ve got those on the screen right now. Can you walk us through those and kind of what you’re thinking was on those and what’s happened? What do you expect for those to happen in the near term?

AM: Well, speaking about IPI, Intrepit. It’s like a leveraged ETF in the fertilizer market. That thing swings 5-10, 11% in a week, no problem. That call was basically on the premise that the Ukraine war is going to go on. Russia is cutting off the fertilizer supply. Belarus has a big fertilizer supply. OCP in Morocco has shifted from actual fertilizers to more like phosphate batteries for EVs.

So it only made sense that besides Mosaic, which is the 800 pound gorilla, IPI and Nutrien were just the logical choices for investments.

TN: And is there room to run on fertilizers like there was a target put on Nutrient by one of the banks of like 126 or something? Do you think we could keep running on those trades?

AM: We can, right? Certainly we can. It just really depends on what goes on with the Russians and whatnot. My only risk for running too far is that the Dixie could go to 105, 110 and then we have significant problems across the market, not just fertilizer prices.

TN: Okay. So even if dollar does go to 110, we’re planting now in the US, right. And now and for the next couple of months. And the fertilizer demand is right now and it has been for the past couple of months. But it’s especially right now, is all of that, say planting demand, is that all priced in already, or do you feel like some of that is to come?

AM: I think it’s pretty much priced in. And let’s just be careful because some of the farms that are planting crops are using nitrogen and also fertilizer derived from nat gas. So it really depends on which way the farming community wants to go, what they see the most profitable crops.

TN: Okay, great. That’s good to know. We also talked about lumber, as I remember a conversation probably three or four weeks ago where I think, Sam, you brought up lumber and how lumber was coming off. Can you walk us through that trade, as we have it on the screen?

SR: Yeah, sure. I mean, it’s a Fed trade, right. It’s a Fed tightening quickly, mortgage rates going up and housing demand coming down. The idea that a Fed going this quickly and having the market priced in, there’s a difference. Right. The Fed has only moved 25 basis points.

TN: Right.

SR: The market has done the rest of the tightening for it across the curve. It’s been pretty spectacular. Housing, housing related stocks, those in general, are going to be the first thing that the Fed affects and they’re going to be the first thing that the Fed affects on the margin very quickly. And you’ve seen mortgage rates go to five plus percent.

TN: Sure. Before we get on to housing, I just have a couple of questions about lumber and other commodities. So the downside we’ve seen come in lumber over the past week or so. Do we expect that to come to other commodities as well? I mean, things like weed and corn, there’s still pressure upward pressure on those. But do we expect other commodities to react the way lumber has?

SR: Oh, no, I would not expect the foodstuffs to react in anywhere near the same manner as lumber. Right. Lumber is a fairly… Lumber, you cut it up, you put it in inventory, you sell it, and then you use it for something.

TN: Right.

SR: It doesn’t last forever in good condition either.

TN: Great. Okay, good. Thank you. Now moving on to home builders, which is where you are going. You also talked about XHB, I think two or three weeks ago, and we’re flashing some warning signs about that. We’ve seen obviously rates rise. I was speaking to a mortgage broker earlier this week. He’s doing mortgage at almost 6% right now and expects them to go up kind of close to 8%.

We’re starting to see the resurgence of ARMs. People are already getting back into adjustable rate mortgages because 5.99% is high. Just as a bit of background, less than 10% of US mortgages over the past few years have been adjustable rates. So can you talk us through XHB? And maybe you had mentioned earlier kind of Home Depot and some of the other home makers. Can you talk us through what kind of… Home Depot was a leading indicator on that? Is that fair to say?

SR: It’s fair to say Home Depot and Lowe’s this kind of ties into the lumber conversation. Home Depot and Lowe’s were two of the best at ordering and trying to actually keep inventory on the shelves, even when during the first tremendous spike in lumber. Right. So they kept a lot of lumber on the shelves. They currently have a lot of lumber inventory on the shelves. And it’s part of the reason that you’re seeing what could be described as almost an over inventory of lumber, not just at those two entities, but across the board, because everybody had to buy lumber in order to keep it in stock.

So, yeah, Home Depot and Lowe’s are the tip of the spear in terms of both home building and in terms of home remodeling. Those are both fairly significant drivers of the business there. There’s a little bit of weekend contractor type deals, but very little.

So overall, I would say they are a leading indicator and they have not been acting very well. But when you have mortgage rates to your point at 6%, that creates a problem for the marginal buyer. It’s not a problem for somebody who owns a home. Right. You have your mortgage rate locked in, et cetera, et cetera. It’s not going to destroy you. It might set off being able to put a new deck and redo a pool or something like that. But it’s not going to hurt you in any meaningful way.

TN: Right.

SR: It does hurt the marginal buyer. It hurts the first time buyer, et cetera. So you begin to have slower turns in housing and you begin to have problems with where does that incremental inventory of homes go? And that’s the real problem with higher invetories.

TN: Right. Before we move on to officially talking about rates and housing, I’ll share a story about a friend who is building a house and their lumber broker who should be able to get the best pricing actually has worse pricing right now than Home Depot. Okay. So they can actually go to Home Depot and get better pricing than their lumber broker. And that’s how messed up the lumber market is right now. They’re arbitraging their lumber broker versus retail any given week in their bulk buying to make sure that they can get their house built. So that market both on the lumber side and on the housing side is just a mess.

So let’s officially go to housing and rates. We’ve done a lot of the discussion, but there was a CNBC story about rising mortgage rates are causing more home sellers to lower their asking prices.

And Sam, you talked about that marginal buyer, which is great, and that new buyer. When I talk to people who are doing mortgages, they tell me that even with the rate rises we’ve seen over the past couple of weeks, there is still not a lot of inventory on the market. That’s a big issue. And they’re not seeing a fall in demand for new houses. So is this kind of a last minute rush for people to get a house before rates rise even more? Is that plausible?

SR: There’s some plausibility to that. Yeah, 100%. The other thing is that we’re in Texas. Right. The demand for housing in Texas, the demand for housing in Florida does not tend to be, I would say, as tied to mortgage rates as everywhere else. The rest of the country is much more sensitive to what’s going on. Texas and Florida and a couple of other spots simply have too much inbound demand from higher priced areas. So California, New York, et cetera. There’s still an arbitrage when you sell a place in California or sell a place in New York and move to Texas, Florida, some of the Sunbelt States.

So it’s tough to take Texas as an example, particularly Houston. We’re actually the fourth largest city in the country, and yet we do not get counted in the S&P Schiller because of how different the housing market is here. Dallas gets kind of for whatever reason, but Houston does not.

TN: We’re not jealous at all about that.

SR: No, we’re not.

AM: Go ahead, Sam. Sorry.

SR: But just to wrap that up, I do think that there’s a nuance to Florida and Texas that should almost be ignored. When I look at the data, I’ll be taking out the Southeast region just because it’s one of those that is a little special at the moment.

AM: Yeah, that’s a key point that I always made is like, because of the migration patterns in blue to red States, things are just really wacky. Florida and Texas, Arizona will be red hot. Meanwhile, Seattle, Chicago, parts of New York are just dead spots at the moment. So until that all gets weeded out, people stop moving. Then we’ll actually see the housing market starting to cool off.

TN: Right? Yeah. I was just up in Dallas yesterday, and things are just as hot up there. And the immigration from the coast to Dallas, especially around financial services and tech, it’s just mind blowing. It is not stopping. It has been going on for probably five years, and it’s just not stopping. Those counties just north of Dallas are exploding and they continue to explode.

Okay, so our next topic is China and China’s slowdown. Shanghai has been closed for a couple of weeks with kind of a renewed round of Covid. And obviously the largest Port in the world, which is in Shanghai, is closed. And that kind of exacerbates our supply chain issues, especially around manufactured goods that we’ve been seeing globally. We’ve seen overnight that. Well, not just overnight, but over the last, say, five days. Food has become really scarce in Shanghai. We’ve seen people on social media talking about how it’s difficult to get food. We’ve started to see little mini protests around Shanghai, around food. And things are seem to be becoming pretty dire.

Overnight, we saw that parts of Guangzhou that the government is considering closing, parts of Guangzhou, which Guangzhou is the world’s second largest port. So the two largest ports in the world, there is a potential that those are closed. There is also gossip about parts of Beijing being closed as well. So I’m curious, what do you guys think about that? I can talk about China for days, but I’m curious, kind of, what alarm bells does that raise for you? Not just for China, but globally.

AM: Well, Tony, you recall, you Balding, and I discussing China’s attempt to attack Taiwan and what had happened. And I had pointed out that closing those ports would cause food insecurity and here we are. Although it’s not a Taiwan invasion, it’s a zero Covid policy that shut down the ports and now we have food stress in China causing all sorts of problems.

Most China observers, especially yourself, know that Shanghai has always been the epicenter of uprising for the CCP. It’s a problem for them. They’ve always tried to wash it. Maybe that’s why they’ve come down hard on Zero Covid Policy. That’s something that I’d have to ask you. But from there, this was very predictable. I mean, you shut down ports, China has a food security problem.

TN: On a good day, China has a food security problem. It is an issue that the Chinese authorities worry about day in, day out, not just when there’s a pandemic. Okay. So one of the things that I was talking to some people about yesterday is why is China closing down? Why are they closing down these big cities? There’s a lot of gossip. You can find a lot of theories around social media saying there’s some sinister plan, honestly and for people that don’t know. I’ve done work with Chinese officials over years. And the economic planners I was seconded to economic planner for almost two years. I believe that they’re closing because they’re worried about how the China virus looks, meaning they don’t want Covid to be seen as the China virus. And they worry about the world’s perception if there’s another outbreak that comes from China.

And so I think the leadership believes that they have to be seen to be disproportionately countering COVID so that there isn’t more wording and dialogue about the kind of, “China virus.” And so, again, I don’t think there’s something sinister going on. There’s a lot of gossip about China intentionally trying to stop supply chains to bring the west to its knees and all the stuff. I don’t believe that at all. I think it’s real sensitivity to how they look globally.

Of course, there’s the public health issues domestically. That goes without saying. But I think a big part of it is how do they look globally.

AM: Yeah, but doesn’t shutting down these ports is going to cause even a bigger spike in inflation within China and actually globally?

TN: Oh, absolutely. This is the one thing that I think they didn’t plan on is they’re about to embark on a whole lot of fiscal, a whole lot of monetary stimulants because they have major government meetings in November of this year. So they absolutely cannot go into recession.

But here’s what I have been thinking about. Okay. We’re looking at a Russia-Ukraine war that could potentially bring down Russia and destabilize Russia domestically. We’re now over the past couple of weeks, looking at a China that is starting to self destruct domestically. And I don’t know of anybody who had the domestic issues of both China and Russia as systemic risks in 2022. These things are just coming out of nowhere. And those two risks can be destabilizing for the whole world. And I’ve said for some time, Western governments have to sit the Chinese leadership down and say, look, you guys are systemically important globally. You need to get your act together around COVID, and you have to normalize your economy because it’s hurting everybody.

AM: Great points. Now, going back to Guangdong, there are some really elite families in China out of that area, really wealthy ones, that actually basically gives Xi the support he needs in the CCP. If he loses those families, there’s real trouble for Xi going forward.

TN: I think there’s trouble for him anyway. I think he is not a one man show. Contrary to the popular Western opinion, Xi Jinping is not a one man show. He is not a single Emperor, kind of claiming things from on high. There is a group of people who run China. It’s just too big for a single individual to run.

So I think Xi has been, I wouldn’t necessarily say on thin ice, but I think things have been risky for him for some time. And as you say, it’s pretty delicate for him right now. And if he doesn’t handle this deftly, I think, again, there could be some real destabilizing factors in China. So this is something again, they didn’t plan for. They were talking about major infrastructure stimulus. They were talking about monetary stimulus, getting ready for this big party in November to nominate Xi for more power and all this other stuff. But it’s possible that these events could really hurt him and really hurt his relationships, meaning the key people around him and then the other factions.

Because as much as people say that China is a one party state, sure, it’s a one party state. But there are factions within that one party. And it should be alarming for China and destabilizing China should be alarming for other people around the world.

AM: Yeah. Same thing as Putin. Like their factions behind them that keep them in power. Same thing as Xi. Most autocratic rulers have a circle of trust behind them that keep them in there. If Xi falls and China starts to, I don’t want to say crumble, but at least wobble, if we think we have serious supply chain issues now, wait till that happens.

TN: Oh, yeah. So Russia is important on energy and a couple of other things, but it’s not globally systemically important on a lot. Okay. I would say maybe it’s regionally important, especially to Europe, but China is globally important. And if they can’t figure this out, it will destabilize everybody.

And so I think Western governments need to not lecture to China, but they need to go forward with real concern about China. How can we help you guys out? Right? How can we help you out? Can we get you vaccine? Can we get you support? Is there anything logistically we can do? That is a way that Western governments can come to the legitimate aid of China. They’ll act like they have it all together, but they don’t. It’s obvious. We see it every day on social media. They don’t.

So Western governments really need to offer genuine aid to China in terms of intelligence, in terms of vaccines, in terms of capabilities, and so on and so forth.

Good. Anything else on that?

AM: No, we covered that.

TN: Okay. Looking at the week ahead. Guys, we’ve got earnings season coming up. Can you talk us through your expectations for earnings season?

SR: Sure. I’ll jump in here quickly. I think there’s a few things to watch. One, the consumer sentiment has been dismal. Right. For the last six months. It’s falling off a cliff. Where the US University of Michigan survey, well below where it was at peak of Covid. But we haven’t necessarily seen retail sales. We haven’t seen corporate earnings and corporate announcements follow that sentiment lower whatsoever.

For anybody paying attention this past week, you had Costco with absolute blow out numbers in terms of its same store sales. Take out gasoline, take out anything, and you still have 7% foot traffic. That was stunning. And that’s not a cheap place to shop.

TN: Right.

SR: So that’s indicative of the higher end consumer that’s still holding in there, at least fairly well through March. That’s pretty important. So then there was Carnival with its best week ever in terms of bookings. Those two things are pretty important when it comes to what is the consumer actually doing versus what is the consumer actually saying, which I think is very interesting.

This week we’ll have Delta Airlines. It’ll be interesting to kind of listen to them and see what their bookings have looked like, see what their outlook is for the summer. And then I’ll be paying really close attention to the consumer side of the earnings reports, not necessarily as much the banks. I don’t really care what Jamie Dimon has to say about Fed policy, but I will say…

TN: I think she do.

SR: Nobody does. But I’ll say the quiet thing out loud. But I will be paying very close attention to what the earnings reports are saying about the consumer, because the consumer drives not just the US economy, but the global economy generally, both on the goods side, services side and really trying to parse through what’s happening, not what the US consumer keeps telling us is happening.

TN: Go ahead.

AM: Sam, really quick. How much of these earnings because I’m a little bit suspicious of how much is it inflationary, prices of everything are higher and remnants of stimulus PvP, whatever the people have been getting for the past year. How much is that calculated?

SR: Yes, which is one of the reasons why it’s a great point, one of the reasons why I pointed out Costco. Costco much less on the stimulus side, much less on the saving side, much more on the high-end kind of consistent consumer. And with foot traffic up 7%, inflation was I think it was about 8%, give or take. So they’re passing on the inflation and they’re still getting the foot traffic. So I think that’s an important one.

On the CCL side, it was after the bookings were after the significant stimulus had already run out or run off. You just weren’t getting checks. I think that was also an indication that maybe there’s a shift from the goods to the services side. The one thing that was somewhat disconcerting, if you’re paying attention to the higher end consumer, was Restoration Hardware. They ran down their book to about 200 million in backlog and don’t really appear to be bullish about this year. They guided well below what some were expecting. I think we’re going to hear a lot more about that, partially because they just can’t get enough inventory in time and they’re kind of in trouble on that front.

AM: Yeah.

SR: To your point, it’s a lot of inflation, but some of these guys are seeing some pretty good traffic, too.

AM: Yeah, actually, funny, you mentioned Restoration Hardware because that was one of the things I was looking at specifically for the housing market, like who’s buying a $30,000 at the moment right now. You know what I mean? It’s just silly.

TN: Yeah, that is silly. Okay, great. Thanks for that. And I’m interested to see how the earnings from Q1 also translate to Q2. I’m expecting a real turn in Q2, and I’m wondering how much that is on investors minds as they look at Q1 earnings.

Albert, as we move into the next point around kind of short term or near term equity portfolios. You’ve talked about KWEB for some time, and I’d like you to, if you don’t mind talking about KWEB a little bit, but also if you and Sam can help us understand what is your thinking right now on your term portfolio.

AM: I mean, KWEB is one of my favorite little stocks because it’s a China technology index and it’s been beaten down to a pulp by the Fed. They have absolutely annihilated not just China, but pretty much all foreign equities. And from my perspective, you’re looking at China stimulating in the fall of the shore of Xi. So it’s like it’s a no brainer to me. I think KWEB at 28 is a fantastic deal. Start piling into that.

One of my other ones I was looking at was FXI, which is basically all the China’s big wig companies. So that’s another one I was looking at right now. In terms of the US equities and portfolios, I mean, we’re so overvalued right now. Where do you put your money into? One of my favorite stocks was TWY a tightened tire. It makes 85% of the world’s agriculture tires. Right. I mean, this thing ran up from $1.45 to $14 at the moment. You know what I mean?

How do you put more money into equities at this stage without some sort of correction or something happening with the Fed to show us which way they’re going to go? Are they going to go 50 basis points in the next meeting and then another 50 and another 50, or they’re just going to use a long bond to actually what Sam said earlier and I forgot to bring it out is they’re using the long bonds also to kill the market. So it’s just like,what do you do?

TN: Yeah. The change to valuations we’ll see over the next three months seem to be really astounding.

AM: They’re just silly. Everything is so inflated at the moment. I can’t in good conscience, say get into this stock or get into that stock, because I know how is it going to run right?

TN: Exactly. Sam, anything to add on that?

SR: I love Albert’s point on KWEB. Think about what’s built into the risk there. You have the risk of the SEC delistings. You have the risk that appears to, at least on the margin, be waning. You have the threat of sanctions on China from them helping Russia. You have a lack of stimulus. You have shutdowns. There’s a lot weighing on that index on top of Fed, et cetera. There’s a lot weighing there on that. And you begin to have some of these calls, the geopolitical onion risks begin to be pulled back a little bit. And that to me is a spectacular risk reward in a market that is generally pretty low on the reward.

TN: Okay.

AM: I had one of my biggest clients from the golden guy. I mean, it’s gold and KWEB is what he’s seeing right now. That’s the only thing he wants to even touch, which is fascinating.

TN: Yes, I can see that. Okay. Next, this week ahead, we’ve got CPI out on Tuesday, which is expected to be about 7.9%. Sorry. And then retail sales on Friday, which is 0.3%. So it doesn’t feel like inflation is abating. But, Sam, you talked about, say, Restoration Hardware and other folks earlier. What concerns you guys have about inflation eating into retail sales, do we expect serious difficulty with retail going forward?

SR: Probably not this month. We’ve going to get the release and it’s going to be for March. And I haven’t seen what I would describe as a poor number coming from any of the major retail facing guys for March. I don’t think that number is going to be distressing at all. I think it’s much more of a . May-June story in terms of the economic numbers lag with a hard L. That’s somewhat problematic.

So I would say you’re not going to see the bad official numbers for a month or two. And on the CPI front, I’ll just throw this out there. And Albert can make fun of me for it, but I don’t really care where the inflation readings come in as long as it’s above 5% the Fed still going and it’s still going with its previous plan, and it really doesn’t care, quite frankly.

TN: That’s good to know.

SR: I just think it’s one of those it’s going to be a no. It’s going to be a no reaction type deal. Unless you get a huge break, then you might get a little bit of a come down on twos through sevens or something. But that’s about it.

AM: Yeah. I mean, as much as I want to make fun of Sam on that one. Yeah. Nobody cares about the inflation. Nobody cares about the inflation number right now until the election season starts really ramping up in about June, July. That’s when I agree with Sam with the retail sales are probably crater or starting to lag significantly in May and June. But yeah, prefer inflation. It’s just like everyone is expecting a 7.9 to eight point whatever, you know, so it won’t be a surprise.

TN: Great. Okay, guys, thank you very much for this. This is really helpful and I appreciate it. Have a great week ahead.

SR: Thank you.

AM: Thank you, honey.

Categories
Week Ahead

The Week Ahead – 04 Apr 2022

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Yield curve inversion is on everybody’s mind and it only seems to be intensifying. It’s happened 4 times over the last 22 years. What does it mean, how does it impact Fed policy and how will it impact markets more broadly?

Energy prices are still a big problem and the Biden administration this week announced a very large release from the strategic petroleum reserve. Will this really bring down prices on a sustained basis? And what are some of the unintended consequences of the SPR release?

We’ve seen tech names rally pretty hard since mid-March like Alphabet and Meta. What’s happening and how long will the tech rally last?

Key themes from last week

  1. Inverted yield curve and Fed policy
  2. SPR release and crude market impacts
  3. Tech’s comeback?

Key themes for the Week Ahead

  1. Rubles for O&G. When will Europe give in?
  2. Housing stocks and the housing market
  3. Mixed messages of simultaneous stimulus and tightening (rate hikes with energy stimulus)

This is the 13th 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.

Complete Intelligence: https://www.completeintel.com
Intelligence Quarterly: https://intelligencequarterly.com

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon

Time Stamps

0:00 Start
1:00 Key themes of last week
1:29 What the yield curve means and how it impacts the Fed policy
4:50 The Fed has to break something?
6:33 Large release from SPR, will this bring down the crude prices?
8:30 Viewer question: Will Biden’s threat to US drillers produce the desired results?
12:19 Tech rally?
14:16 Key themes for the week ahead.
14:44 How long before Europe pays ruble for oil and gas?
18:52 Home builders VS real estate
21:00 What do people read from tightening, easing, and all the stimulus?

https://open.spotify.com/episode/6lq8AQvU602RQWSPWi5bYz?si=698bb7d1e4f94b23

Transcript

TN: Hi and welcome to The Week Ahead. I’m Tony Nash. I’m joined by Albert Marko, Sam Rines and Tracy Shuchart. Thanks for joining us. Before we get started, I’d like to ask you to like and subscribe to our YouTube channel. Also, want to let you know about CI Futures, our subscription product. We cover thousands of assets and economic concepts on CI Futures. Our forecasts are refreshed every weekend. You come in Monday morning and have a brand new forecast each week. Right now we’re offering a special subscription price of $50 a month. Please go to completeintel.com/promo and find out more.

So this week we had a few key themes. First is the inverted yield curve curve and Fed policy. Second is the SPR release and crude market. And the third is around tech. Is there a comeback in tech?

Sam, you’re up first. Let’s talk about the yield curve. It’s on everyone’s mind and it only seems to be intensifying. It’s happened four times over the last 22 years. So Albert and Sam, can you help us understand what does it mean? How does it impact Fed policy? Are they going to be more cautious going forward and how will it import markets more broadly?

AM: Well, Tony, concerning the inverting the yield curve, Jerome Powell doesn’t really want to do that. However, Janet Yellen does want to invert the yield curve. This is the divide that’s been throwing off the market analyst for quite a long time, quite a while now, actually, myself and I just found out and realized where the divide was. And normally in a deep quad for to take something from hedgeeye’s commentary, the only things that you can buy are Treasuries and gold. And right now Powell will be fighting a tide because of the long dated treasure is the number one thing to own in that scenario. So trying to protect stocks while hurting housing, and then you have Yellen that’s trying to protect housing. It’s quite a mess. And it’s probably something like Sam can actually detail the inverted yield curve on.

TN: So why are there are two camps just to go into that down that trail for a second?

AM: Well, it’s a policy, it’s ideology, basically. Yellen did this before in 2013, 2014, I believe. And Powell is not really an economist. He’s a lawyer. So he’s probably hearing it from his little circle of miscreants. So that’s where that’s coming from.

TN: People, whoever is listening.

AM: I’m sure they’re fine people. I’m sure they are. I think Yellen is probably correct in this instance, but we’ll see how that plays out.

TN: Okay, Sam, what do you think?

SR: Yeah, in inverted yield curve, generally, everybody’s like, hey, recession on the horizon. In reality, yeah. I mean, there’s always a recession at some point on the horizon. And what the yield curve tells you is that there’s one coming in the future. No kidding. But it’s not good for one timing, a recession period.

TN: So we’ve got the 2/10 spread on the screen right now. So can you tell us what does that mean and how much importance does that hold with that two and ten yield spread going negative?

SR: I mean, it’s something to pay attention to. I mean, the market is telling you something with that. There is some signal, even if there’s noise in there as well, that the Fed is going to go very, very quickly and is likely to break housing or break something else or break housing and something else. And that’s going to probably cause inflation to come back down. Right.

The market does not believe that or at least fixed income market does not believe that inflation is going to be a problem in ten years, does not believe that the Fed is going to be able to hold interest rates very high for very long. And that’s why you get the 2/10s inverted. Right. The Fed is going to go above what the “natural rate or the stall rate” is for the US economy.

TN: Right. So we’ve been saying for several weeks the demand destruction is the only way that the Fed is going to solve supply side inflation. And the last couple of weeks you’ve talked about the Fed breaking something at this point, the Fed almost has to break something. Right? I mean, Volker broke something in the early 80s. Right. Something has to be broken.

SR: Yes. Something has to be broken or you’re not going to solve the inflation issue. And you have to do it. You have to do it in a pretty rapid manner of tightening in order to get the inflation levels that we have now back to something somewhat reasonable in a time frame that is adequate. But again, it doesn’t tell you what’s going to break. We talked about it last week. Housing looks sick. Housing equities look sick. It does not look great, but it doesn’t tell you much about the broader market. Right. It’s a lot of noise. You can say that it’s bad for equities, but generally it takes a while for it to be bad for equities.

TN: Okay, great. Now, JPMorgan put out a note this week. Everyone’s putting out notes about when rates are going to rise. They said 50 in May 50 in June. Are you thinking that or is that kind of on the edge of aggressive?

SR: I mean, it’s aggressive, but the Fed has very little choice but to be aggressive in this instance or it’s going to lose credibility further. And that’s an issue for it. Right. It doesn’t want to lose that little bit of credibility it has left to raising rates too slowly in an environment where it’s getting the green light to do so from markets. Markets have it priced in. Why not do it?

TN: Yeah. If someone said in January that we’d be raising 50 in May, 50 in June, I think you’d be laughed at. But now it’s taken seriously. So it’s just really interesting to see the iteration of that expectations.

Okay. Speaking of inflation, let’s move on to energy prices. Tracy, obviously, there’s still a big problem. And this week, the Biden administration announced a very large release from the Strategic Petroleum Reserve. You’ve been all over this, including the Tweet you sent out on Thursday, which is on our screen talking about logistical issues.

So the main question I think for most people is will this bring down oil prices on a sustainable basis? So can you talk to us about that and some of the unintended consequences of the SPR release?

TS: Yeah, absolutely. It’s not enough to keep oil prices sustainably lower. Right. It doesn’t fix the structural supply deficit that we have years to come. Also, this slows shale growth because it disincentivizes shale producers from drilling more, which actually needs to be done and also creates potential logistical bottlenecks because we’ve never released this much before. That could cause congestion on the Gulf Coast. And that Tweet is up I think, talking about the bottlenecks there.

And then there’s another issue that has not been discussed yet broadly. And that’s because the SPR is aging. Right. And so we’ve had releases before where we’ve seen degradation in oil. And in 2015, they approved the $2 billion upgrade to the SPR, which is not going to be done until 2025. That said, what they did is they did everything except for the distribution centers. So what will happen is we need to see if we can actually get a million barrels per day pushed through. So there’s a lot of obstacles here.

TN: So it’s a sentimental kind of downside for oil right now. Nothing’s really released yet. And it doesn’t seem all that feasible that it’ll come out soon. Right. So supply chain issues like we’re seeing everywhere else.

So we had a viewer question from @VandanaHari_SG. It says, to what extent will Biden’s threat to us drillers to drill or get off the lease, produce desired results? You mentioned Frackers earlier. Will we see much movement there?

TS: No. Biden did call for Congress to make this decision. Personally, I do not believe that this will actually get passed by Congress. That said, again, this disincentivizes oil companies from producing more because it’s not that easy to just turn on wells. They’re facing labor shortages. They’re facing supply chain shortages. It’s not that easy to do that.

So if you tell them we’re going to tax you on this, then if they abandon those wells, then it’s going to take that much longer to get them back online when they are ready to. So all in all, it’s a horrible idea. Again, I do not see Congress passing this whatsoever.

TN: It’s complicated. And I think that’s the thing that we live in a world that likes to simplify things a lot. Right. And we like to say we’re going to do X, we’re going to do Y, we’re going to do Z. And the implementation of this stuff seems to be a lot more complicated Than we hear from, say, these non experts that talk to us all day long on TV or social media.

TS: Exactly. I mean…

TN: We can’t just wave a wand fixed supply.

TS: And turn on oil wells. I mean, regardless, we run through our DUC supply. Right. And that’s why we’re seeing slower oil production. The monthly EIA monthly just came out yesterday. It was 11.37 million barrels instead of 11.6 million that they were estimating in the weekly. And so what happens is that you’re pulling down DUC wells, which are the ones that you can get up easily, and then you’re putting all these restraints on oil companies and threatening them with taxes and things of that nature.

To get a well online from start to finish is six to twelve months. People don’t realize it’s not let’s snap our fingers and tomorrow we’re spreading oil.

TN: It’s not exactly a nudge. Right? Remember, under the Obama administration, they really focused on condomin and the nudge and all that stuff. This is kind of the opposite of that. It’s like the bludgeon.

TN: Yeah, exactly.

TS: Doing what they want. Right. Sorry. Go ahead.

AM: No, this is just political rhetoric. I mean, they’re better off just jumping into the oil futures market and trying to drive it down. This is just talk by the Biden administration. There’s really no substance to it.

TN: Can they jump into the futures market and short it and drive the price down?

AM: Who says they haven’t? Okay. You’re looking at 127 price and all of a sudden it’s down in the 90s. Is this crypto crude? What are we doing here?

TN: Okay, that’s a good point. All right.

SR: Just one last point to that. I know Tracy actually think Tracy tweeted this out a couple of weeks ago. The latest Dallas Fed survey of oil companies made it pretty clear that a lot of them at no, they don’t care where the prices. They’re not increasing their output. They put that on paper and put that in the survey. I think that’s worth remembering is that this is a less price sensitive reaction than people are going to give credit for.

TS: 100%.

AM: Yes.

TN: Okay, great, guys. That’s fantastic. Let’s move on to equities. Albert, we’ve seen tech stocks rallied pretty hard for the last couple of weeks since about March 14th. We’ve got chart for Alphabet and Facebook on the screen right now. Sorry. Meta on the screen right now. What’s happening to tech? What’s happened over the last couple of weeks and how long do you expect them to rally?

AM: Well, they’ve used tech, maybe a dozen names to rally the market. This is well known. I mean, if you look at those names that you have listed along with AMD, Nvidia and Adobe, they can be up to 30, 40% of the call action on a given day. It’s kind of silly, but honestly, it’s like this is a zero rate economy at the moment. So as our rates go up. Yeah. So as our rates go up, I don’t see how tech is going to rally much further.

TN: Okay, Go ahead.

TS: I’ll just throw in that just because BAMO came out with their weekly flows that we’ve had, tech market was $3.1 billion, which is the highest in two months.

TN: Okay. Interesting. All right. So if we go with the note that came out that in May and June will see 50 basis point rises, and you’re saying tech can’t continue to rally into higher interest rates, are you saying we’re looking at that type of horizon for tech to not be as attractive?

AM: Yeah, unless they reverse course come June or July. I don’t see how tech can really rally to what their all time highs were a couple of months. I don’t see it.

TN: Sam, does that make sense to you?

SR: It does make sense to me. I think the only saving grace for tech thus far has been that the long end of the curve hasn’t done much, and it actually looks a little sick at the moment in terms of yield. And that’s been a little bit of a semi tailwind, at least prop them up.

TN: Great. Okay, perfect. Let’s look at the week ahead. Some things we have for the week ahead are rubles for oil and gas. When will Europe give in? Housing stocks and the housing market? Sam mentioned that earlier. We’ll dive a little deeper into that and then the mixed messages around simultaneous stimulus and tightening, which I think is confusing some people.

So first, let’s dive into rubles for oil and gas. I did a quick Twitter survey earlier, which is up on your screen asking people how long before Europe caves and pays for oil and gas and rubles. Something like 70% of people think they’ll do that within two weeks. It’s just a Twitter survey. Some of those guys are experts. Some of those aren’t. Tracy, what do you think? Is that realistic?

TS: Putin actually came out today and said this is the plan. There is no backing out. However, it doesn’t include what you pretty much already bought. That means. So deliveries until most delivery until April 15, and then really in May 1 is where that really starts, where Europe will really have to start paying in rubles.

TN: So May 1 is when you think the rubles?

TS: May 1 is really when the bulk of this situation will come in hand because it’s not for what has already been ordered. Right.

TN: Okay.

TS: Does that make sense?

TN: You think we could see a trickle in mid April?

TS: Yeah, exactly. But I think that they’re going to have to do that. They really have no other choice unless they kind of want to plunge into the dark ages. Right there’s just not the backup plan is forming, but it’s just not there yet. So I think that they will concede even though they have a little bit of a time. They have 15 to 30 days to really. But you can’t move that fast. It’s not that easy to change suppliers that quickly.

TN: But we’ve talked about this a little bit. But what happens to say industrial output? German manufacturing if they decide not to do this? To be honest, it sounds like a pretty trivial thing to me to pay in another currency. There is a transaction cost to it. But if you’ve got a major economy, it doesn’t sound like something that you can really stand by insisting to pay in dollars. So what happens to German manufacturing? What happens to industrial cost Europe.

TS: It’ll actually plummet. I mean, BASF already came out and said we’re going to have to cut production if this happens. The German plan is basically to shut down manufacturing and to give residential the leeway if they have to start rationing. So that means if manufacturing starts shutting down in Europe, you’re in recession territory immediately.

AM: Yeah. They’ll find a way. They’ll find some special vehicle to sort this out. They got a little bit of time, like Tracy said, they got about two months really to sort this out. And anyways, the weather is starting to get warmer, so the less gas will be used. Anyway, I don’t see this to be really of a big problem. It’s just a lot of noise and a little bit of leverage from Russia on the sanctions that they are getting hit by well.

TN: But conceivably because of the embargoes on some of the banks in Russia, it could be a real issue with having funds rubles in Russian banks. No?

AM: I don’t think so. They can go between the Swiss, London will do it. It’s the same thing as the Yuan, renminbi, it’s like when they trade it for oil, the Saudis sell it in renminbi and goes to London, gets converted instantly and it’s dollars almost immediately to the seller. So I don’t think it’s going to be a problem.

TS: I 100% agree that the currency doesn’t really matter because it’s still factored into what is the dollar value. Right. It doesn’t really matter or any in Europe’s case, what is Euro per megawatt hour?

Regardless, it’s not really the currency that matters so much. The fact is the currency is helping. What Russia is trying to do is that if you have to sell euros to buy rubles, that keeps the currency afloat.

TN: Right. Which we’ve seen it surge back this week to pre war levels. Okay, great. Let’s move on to homes and home builders. Sam, you mentioned the housing market and housing stocks earlier, and we’ve got on the screen a chart about US real estate and home builders and the divergence between those. And they’re usually pretty correlated. Can you talk us through your expectations for real estate relative to where homebuilders are trading right now?

SR: They’ll look like homebuilders pretty quickly here. It’s what the Fed is basically able to do in terms of the economy quickly. Right. If you’re going to tighten rates by two and a half percent in a year, plus quantitative tightening, that’s what you’re going to hit. You’re going to hit home builders and real estate. That’s generally what you’re going to hit and you’re going to hit it fast.

In particular, the shorter duration type real estate that’s benefited the most from zero rates. If the long end of the curve stays somewhat subdued, you’re probably fine if you have longer duration type retail or that type of lease. But the shorter term duration real estate type plays are going to be in some trouble here.

TN: Okay. And so you say it’s going to happen pretty quickly. Last week you said it’s going to happen in Q2. When I first heard that, I was a little bit surprised. But just seeing what’s happened over the past week, it’s been really surprising to me that things have moved so quickly. So I think you’re right. I’m really interested to see that happen.

Now. You also mentioned QT. So let’s talk a little bit about kind of the tightening and easing, the simultaneous tightening and easing that we have going on. And how do we expect that to move over the next week? So, Sam, you’ve been pretty insistent that QT is going to start in May, is that right?

SR: Oh, yes. Little doubt.

TN: Definitely going to start in May. Now we’ve got countries and States giving energy stimulus and other things happening. I wouldn’t be surprised if different forms of stimulus come out. So how does it work where we have really fairly significant stimulus coming out as we’re tightening? What do people read from that?

SR: I would say confusion. Right. If you’re trying to actually tackle if you’re trying to tackle inflation with monetary policy, that really has to break something in order to get it under control, and yet you’re giving people more leeway to not have something break more money in their pockets. It’s counterproductive. Right. So you begin to either have to tighten more or tighten quicker or both to get it under control or you have to stop it with the fence full fiscal.

TN: What are you hearing about that Albert out of DC?

AM: I was on this program. When was it? About a year ago, talking about tapering with Andreas, and I was against tapering. I never think it was going to happen, but because the fact that we just keep going on QE, how do you tighten when you have QE and the Fed balance sheet is still expanding by 100 billion plus a week. I mean, that’s not.

This is why there’s so much confusion in the market. Like Sam was saying, it’s just you talk about tightening. Meanwhile, you secretly spend $160 billion to pump the market. So which one is it? As an analyst, how do you even assess what you’re going to do over the next 30 days when the Fed’s confused? The Fed and Treasury is confused.

TN: So can we have that where we’re say doing tightening but helping equity markets continue to rise?

TS: I mean, is that just weird? Of course it does. It is weird. You can’t have monetary policy going head to head with fiscal policy. Right. So you’re having fiscal policy loosening. At least let’s look at the energy markets right now. You can’t have all of this stimulus and it’s not just from the United States. It’s from across the world is doing this and we’re going to see more of this every week of new countries come out and save money.

TN: Not in Japan. Japan is easing across the board.

TS: Yeah.

TN: Everyone else.

TS: True. But of course, I agree completely with the Sam said it’s confusion in the markets because you are literally having central banks butting heads with governments right now.

AM: Yeah. And that’s something people don’t really pay attention to. It’s not simply the US federal reserve with the US economy, but it’s the federal reserve with all of anglesphere. They can have the Canadians or the UK do tightening while we do expansion and vice versa. They can do it unending. It’s unbelievable.

TN: So when do we know the direction? When do we know whether we’re tightening or easing? Do we come to a point like is May the end point for easing?

AM: I don’t know, Tony. I can’t really tell you that because they can say that they’re doing that and then we find out two months later that they didn’t do it and they can use all sorts of weird little gimmicks that they have control over.

TN: Okay, Sam, what do you think?

SR: I think the comment about the Anglosphere was really interesting because it’s 100% true, right. If you look at a lot of the EMS, they’ve been talking lightning for a year or at least nine months. So I think that’s the really intriguing kind of comment for me is the US is probably so late to the game that EM is going to be easing by the time the Fed actually accomplishes any sort of tightening.

TS: They’ll have to, they will have to.

SR: Which sets something interesting up, by the way.

TN: Sorry.

SR: Which sets something interesting up for when that happens. But that’s down the road.

TN: It really does. Yeah. Remember synchronized easing and synchronized tightening a decade ago? I just feel we have so many mixed messages out there that it’s no wonder we have the volatility that we have in market. Okay. Thanks very much for this. I really appreciate it. Have a great week ahead.

AM: Thanks, son.

TS: Thanks.

SR: Thank you.

Categories
Audio and Podcasts Visual (Videos)

Trump closes the Republican National Convention

Our CEO and founder Tony Nash joins the BBC for Business Matters podcast where they discussed Trump’s speech in the Republican National Convention, the 2020 US Presidential Election, TikTok’s 90-day deadline for its US operations, Hurricane Laura, the future of work with thermal scanners, etc., and a company where you can book celebrities to record messages for you or loved ones.

 

This podcast was published on August 28, 2020 and the original source can be found at https://www.bbc.co.uk/sounds/play/w172x18wyjn7kj1

 

BBC Business Matters Description:

Donald Trump accepts the presidential nomination in a speech live from the White House. This hasn’t been entirely well received – with critics arguing using federal property for a campaign speech is unethical.

 

Walmart joins Microsoft in bid for TikTok’s US operations. TikTok has been given 90 days to sell its US arm to an American firm or face a ban in the country. Donald Trump has alleged it shares its user data with Beijing – claims it denies. Earlier on Thursday the firm’s boss resigned ahead of the impending ban.

 

Also in the programme, we look at the Federal Reserve’s new plan to revolutionise how it sets policy, including interest rates.The bank will now let inflation rise to allow the economy to produce more jobs.

 

Plus, what future do New York offices have post-pandemic?

 

And we hear from the boss of Cameo, a company through which you can book actors, musicians and sports stars to record a message for you or your loved ones.

 

Show Notes

 

ST: Who do you think President Trump will be trying to appeal to tonight? I mean new voters or do you think he’ll be going for his base? What do you think?

 

TN: He’s obviously going for his base. I’m really confused by what your guest said I’m not actually sure if she’s watched the convention but I think he’s really going after his base and I think what he’s also going after is independent voters.

 

There was a poll out yesterday from Rasmussen, who’s the only pollster who got the 2016 election right. And it shows Biden leading Trump by one point. So there was a 10 point spread in early July with Biden leading. According to Rasmussen, Biden is only leading by one point at the moment. It’s a really interesting convention in terms of you had people like Tim Scott, Nikki Haley, a guy named Maximo Alvarez who’s a Cuban immigrant.

 

It’s a really interesting invention in terms of how people are looking at the future and how people are really wondering what American values are. I think that’s what is under discussion right now and what’s being presented is a dramatic contrast around really civil unrest. And by civil unrest I mean riots in cities versus
what American values are. And I think they’re putting that out for debate, hoping that Joe Biden will actually
debate Donald Trump during the election season, so they can talk about these issues face to face.

 

ST: Well that’s not an under debate is it? I mean that will be going ahead? The issue…

 

TN: Oh no. There are people who are recommending that Joe Biden doesn’t. Hillary Clinton was out. A number of US senators and congress people were out, saying, that Joe Biden should not debate Donald Trump and that would be an incredible disservice to the American people.

 

ST: Let’s look at one of the other points that our guests brought up. The incumbent would normally want to be promoting a sort of really optimistic and positive view of the country. That is incredibly difficult to do when you are in the middle of a pandemic.

 

TN: If you look at the number of tests. If you look at how things are going. If you look at even in New York. Today was the first day that there were zero deaths. So even in New York, you can’t necessarily argue that things are not getting better. But in watching the convention. I’m a political nerd. So, I watch these things. I think the democrat convention was really negative. The republican convention, the speeches that I’ve seen have been very, very positive and very, very encouraging. So, I think there really is a contrast between those two.

 

ST: Do you think, Tony would you agree with that because there’ll be people who would characterize bike dance in a very different way in the States.

 

TN: Yeah, to be honest I don’t think many people in the US are thinking about that. I definitely understand the Chinese perspective but I think if you look at from the buyer’s perspective. Doug Mcmillan at Walmart very smart. Sachin Nadella at Microsoft very smart. What does Microsoft get out of it? They get an ad network and they can compete with Google for a very innovative ad driven product. What does Walmart get out of it? They compete with Amazon and they can get a very interesting demographic for shopping and keep them as they grow. So, I think from the buyers perspective, it would be very interesting. In terms of the price, look these things come and go. I think, they’re not going to buy it for a song. They’re going to buy it for real money.

 

People in China are going to be enriched from this and it’s not as if you can transition that technology from China to the US in 90 days. There’s going to be a transition period. There’s just going to have to be oversight from the US side in terms of security and other things. So, I understand that China feels that way. China has a history of a lot of problems. I was in Asia for 15 years. I saw firsthand a lot of what Chinese have
done on the tech side. There are sins on both sides. So nobody is innocent here.

 

ST: I just wonder whether you could give us an update on Hurricane Laura because you’re there in Texas and I understand you have avoided sort of the worst of it. I think the phrase from the governor was dodged a bullet but I mean, no less there has been damage.

 

TN: I wanted a hurricane and I didn’t get one. It went to Louisiana instead. I’m trying to make the best of it but we expected it’ll hit us about 1 AM and we had clear skies all night. So, it is a serious hurricane. There is serious damage. In Houston, we went through this three years ago with Hurricane Harvey. We lived through that. We saw the wreckage and it’s pretty awful actually. What will happen is, we’ll see this in the news for the next few days.

 

But when you have standing water in homes for more than say 48 or 72 hours, the entire home needs to be gutted because of the mold and because of all the problems that come as a result of being flooded. So these poor people who are in the path of this, they are going to have to be dealing with this for weeks. They’re going to be volunteer crews that go out to these homes to tear up the inside of their homes and help these guys just find a place to live.

 

ST: Indeed, it’s not just the initial impact that we see and hear about so often. It’s the ongoing impact as well isn’t it?

 

Tony, let’s ask you about the big cities within Texas. We heard about New York from Samira but what sort of
impact has been seen in places like Austin or Houston or Dallas?

 

TN: We have two offices in Texas. One is in Houston, one is in Dallas. I think, the one that’s been the most stark is in is in Dallas. And we have an office in downtown and don’t forget we had the protests that were very aggressive in Dallas, as well. That really pushed a lot of people out of central cities mid-summer. It wasn’t just COVID, it was also the unrest in cities. Our team would largely go into the office. They had the optionality to stay home, too. Some of them stayed home but we’ve kept our offices open as long as the local authorities would allow us to do that.

 

ST: Let’s talk about the technology that Samira was finding out about in her report and the the temperature sensors, but some of the technology that would mean that you could walk into as an employee, you could walk into a building, you wouldn’t physically have to touch anything until you actually go to your office desk or whatever. Do you think as people we’re becoming more accustomed, now, because of this? We’ve had to become more accustomed to quite sort of invasive surveillance technology many people would see this?

 

TN: When I lived in Asia, I think, we had five or six pandemics. So, temperature scanners and these sorts of things in public spaces are just normal, you just get used to it even when there’s not a pandemic. So, I think in the US and in Europe, if that sort of stuff is to become the norm I really don’t think it’s that big of a deal. I think, it’s something that people will get used to and they’ll be quite comfortable with it.

 

ST: Is interesting because both of you obviously have the experience that you have but i’m speaking from someone who lives in London. I’m obviously still working from home but I have been back into the office and the temperature scanner there does feel alien. Simply because it is something which we are not used to. I wonder though if I’ve been in the office or going into the office every day, that by now actually I would just breeze through it and wouldn’t even give it a second thought. It is interesting how people are adjusting and adapting to so many different things in the world of work and actually our offices and our city centers go the same way. Tony?

 

TN: If you go through airports a few hundred times with temperature scanners on it like people in Asia do, you just get used to it and I have a feeling that will be more and more common.

 

ST: We will have to see how it progresses. And indeed, how the world of work changes in many other ways. Possibly some that we haven’t even anticipated as well.

 

Let’s just imagine for a moment. It’s your birthday or you get a promotion or you get engaged, maybe. Who would you like to get a congratulatory video from not just your mum or your best friend but perhaps your favorite celebrity? Well that is what a business called Cameo offers actors musicians sports stars they would record a message for you of course, for a fee. One, can you know, access celebrities if you make someone a celebrity you shouldn’t have access to them or is this just a bit, I don’t know. What do you reckon tony? Would you be up for this for your next birthday? Pick your favorite celebrity.

 

TN: Of course, I would love a happy birthday message from Samuel Jackson, why not, right? So look, people want it, they want to pay for it, celebrities want the money. So, no harm done. I think it’s a great idea.

 

ST: I’m actually, I’m on the website now I was having having whether or not i could find Samuel Jackson in this amount of time. I couldn’t be sure but I have to say, I don’t know whether you both are thinking that this could cost thousands but this is how can i put this? Office whip round birthday money territory. This is sort of attainable for uh the whip round for getting your colleague a present. As technology changes Tony, these sorts of things there’s always going to be a market and this could be someone who’s going to exploit this idea. That actually, you can get a celebrity to do this particularly in downtime with Coronavirus.

 

TN: You can, but I think there’s a window on this because technology could have something like a film that looks like Samuel Jackson, saying happy birthday to me within a few years. I mean, that’s available now but probably widely available any time. So, I think there’s a window on this of maybe five years or something until technology really fills the gap on it.

 

ST: Surely you’d know, surely you’d be able to know that Samuel Jackson. We are out of time on the program today but huge thanks to my guest James Mega, China editor economy at Bloomberg. Tony Nash who’s in Houston, Texas and thank you for listening this is Business Matters on the BBC World Service.