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tv   Bloomberg Markets Americas  Bloomberg  September 16, 2021 10:00am-11:00am EDT

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♪ >> thursday the 16th, 30 minutes into the trading day in the united states. i am guy johnson. alix steel in new york. was it in person retail or online retail? the number was strong. alix: when i went to back to school for my kids, the shelves were bare, there was so much demand. i am not quite sure what it is. michael mckee can help explain that in a second. the s&p is down .4%. quadruple witching coming tomorrow, so expect some repositioning into that. you did see a spike higher in
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bond yields, selling continues. maybe growth will not be that terrible. maybe that peak growth narrative is being rolled back a little bit. loyal finally taking a break along with other commodities. the idea is why do people shop? michael mckee is here to explain. was it back to school, was it me? mike: i am sure you played a big role, but how much of it is inflation? these are not inflation-adjusted. the fact that we went up .7 was a surprise for the month, but the two point 5% gain in the core retail sales numbers, how much is due to higher prices rather than higher volumes? that will tell us something about whether demand will remain strong. one thing we know is that non-store retailers had enormous turnaround. probably that is where alix
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comes in with her back to school shopping. we also saw department stores up as well. we do see a bit of a delta effect. look at the turnaround in grocery stores, restaurants and bars in july. that reversed in the month of august. the other data out this morning that caught the attention of wall street is the big increase in jobless claims, up 20,000 on the week, but there is a reason for this. it is hurricane ida. delayed filing from the people who could not get to work and it was also a holiday shortened week the prior week with the labor day holiday. people could not file, so we are getting a backlog there. that is not something to worry about. where does this leave the fed? that is the question everyone is betting on as they move in the markets today. the fed is in a position where they are not making a difference to any of the numbers i gave you today in terms of their bond buying.
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it keeps going up and up. look at when we got spikes in retail sales. these are when we got the stimulus checks. this is when we got the child care tax credit checks going out. as long as the government is giving you money, you are spending. the question is, when they stop, do you stop? alix: my husband wishes i did. guy: we all know the answer to the question. i have seen pictures of the number of shoes. there are many, many shoes. in fact, a whole closet design for the shoes. that is what you said about the volume story. alix, if you are paying more for your shoes, that means we are ultimately seeing inflation get firmer into the system, and christmas is coming. tomorrow, we have a university of michigan consumer. what do we want for christmas? rachel evans' story focused on
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supply chain disruptions. mike is highlighting that maybe we are started to see the price of things go up because we are seeing supply chains being squeezed, and we are buying more. we have a lot of money and there is a shortage on the supply side. what are we learning about what that run to christmas will look like? >> mike hit it on the nails with the price increasing. a lot of it is due to these supply chain snags, and that is what today's big tech looks at. we have a profile with a logistics manager. if you are planning a bathroom refurb, she would be your woman. the experience she is finding is it is much harder to get the containers she needs to ship her goods, and the costs of shipping has really soared. and it is taking longer to get
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things from a port in china to the u.s. coast. in terms of what that means for christmas, if we can extrapolate that, we are running into a tighter than ever deadline for the manufacturers of the world to get their goods out of china and send them to the u.s. and europe for the holiday shopping season. at the moment, manufacturers are just about keeping pace, translating into retail sales. but we could start to see these goods become harder and harder to access. it will be interesting to see heading into the holiday season just how much of those goods can make it in time. we are seeing it on the market side with the inflation, but it is starting to creep higher. we are seeing it in u.s. yields. when it comes to the shopping outlook and mary are with goods, there are some deep-seated issues that suggest some of these issues could last into
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2023, so we are not close to solving those. alix: thank you so much, rachel. really good to see you. the cherry on top is now natural gas prices, soaring in the u.k. the energy crunch made a major fertilizer shut down two plants, and that could take a bite out of the cash that you have in your wallet. joining us now is our power and renewable energy editor davidwill, how high can prices go? what is the pass-through risk? >> definitely the power story in europe is all about natural gas, and they can go quite high. we have seen supplies out of russia slow down. they had a fire at a facility. supplies out of norway have been coming down, doing maintenance. we have seen prices in europe triple this year. that will have huge ripple effects. gas supplies are almost a
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quarter of the electricity in europe. just in italy, the expect electricity prices to increase by 40% in the third quarter. this electricity issue has been exacerbated by wind. the north sea, they have all of these windfarms. the wind has been among the lowest in 20 years, so that is making the shortage worse. plus, in the u.k., there are these two important cables that link the u.k. to france. one of them had a fire. they expect that to be down possibly until march. there is a risk of electricity shortages in the u.k. through the winter. the utility says they have some of the lowest winter excess capacity they have seen in years. if that is making your utility bills go up, who knows what you are willing to spend on christmas. probably want to be careful. guy: thank you very much, will.
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norwegian supplies started to come back a little bit. gas prices coming down but it will be a lovely run into christmas. alix, we are getting news on the world economic forum, davos is back on. apparently heading back to the swiss alps, taking the train up. it is a lovely journey up there. the question is, is the pandemic going to play ball? we have all of these plans, we think things will happen. i don't know what the winter will look like. i would put a pin in that one and wait to see what happens. alix: you could go because you will have your booster by then. the booster question here in the u.s. is still unclear. with the flu season coming in, there are a lot of question marks. guy: it is a nice train ride.
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as you say, the european union starting to tighten up its regulations on visiting u.s. passengers. i expect many of the ceos flying over want to go to davos and other things, so it takes the edge off if you cannot spend time in the eu. it feels like a long way away. coming up, more pressure on the consumer. mike wilson, morgan stanley's chief u.s. equity strategist joins us next. this is bloomberg. ♪
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alix: i am buying more.
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will i be able to buy enough stuff for christmas? that is the question going forward and how you allocate your portfolio. mike wilson of morgan stanley is with us. we are having a conversation about the consumer. retail sales are strong but you have pricing pressures, labor continuing to rise. how do you by the consumer like now? mike: we don't pay we think the consumer is pretty stretched. services is a different story. we track retail sales relative to personal income. michael rose referring to that earlier. we all know the stimulus checks really boosted consumer demand in the first half of the year. we would say we think the consumer over consumed in the first half of the year. we saw a snap back in august after disappointing numbers in july, but that was seasonal back to school. we think folks dipped into their
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savings a bit, so we don't expect them to dip into the savings the same way going forward. they have over consumed for a lot of different items. services is different. there is pent-up demand, but here is something people don't appreciate. services is 70% of the economy. however, it's only 20% of the s&p 500 consumer discretionary sector. consumer goods companies are just bigger. we think that group is set up for pretty big disappointment going into next year. we are underweight consumer discretionary stocks. guy: is that another reason to not buy a specific sector? underweight that sector, overweight another sector, a lot of people have talked to us, still an aggregate, very long stocks. what will it take for people to actually rotate money out of
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equities and actually delivers some kind of index downside rather than subsector downside? mike: our midcycle transition which we propagated in march played out really well at the stock and sector levels. the relative value trade has played out the way they normally do but you bring up a good point. indices have not yet because the inflows to equities are so powerful. until that changes, you are right, we are not going to see an index level correction. we think we will still get an index level correction this fall, and we think the catalyst will be negative earnings revision breadth. the rate of change on revisions will turn down. we are how they of that. and the fed moving away from maximum accommodation will also weigh on stocks. we will question this proposition, do i want to plow money into stocks at these
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levels? alix: that brings us to the third leg of the stool that could come out from underneath everybody, taxes. the house ways and means committee unveiling their proposal. i want to bring in annmarie hordern. what is the hit to corporation potentially? >> we will be hearing from the president, talking about the fact that he thinks america needs to have higher taxes for the wealthiest americans, corporations, and the house ways and means is increasing that, not by the amount they wanted, but still higher, and that is to fulfill the economic agenda and have more of a safety net for things like childcare, medicare. what i will say, when it comes to taxes, this is just the first step from the house ways and means. when you look at what the senate finance chair is saying, senate, they didn't think this
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did enough in terms of the inheritance tax. especially from where you are sitting in new york i'm a what matters for new york, new jersey, hawaii, these high tax states, is that salt tax. that is yet to be addressed. guy: alix is pretty invested in that one. everyone is pouring on the salt story. new jersey, a huge focus as well. thank you very much. annmarie hordern joining us from d.c. mike, the market seems to be pricing in a benign picture when it comes to taxes. everyone is expecting some pickup but not much, and it will not interrupt the market in terms of the narrative we are seeing at the moment. is that the correct way to approach this, cannot ignore the tax story if i'm looking to build a portfolio right now? mike: we think there's a pretty good chance that taxes are going
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up, if they get this budget passed and the infrastructure bill they want to get through. they seem to have every intention of wanting to do that. i think the infrastructure bill and the bigger budget is great for the economy but not the stock market because of taxes going up on the corporate level, capital gains, inflows. bottom line for us, it is a lot like 2017. people were skeptical about whether tax cuts would be priced. we were constructive on that you and we thought they would. we think it is the same set up. just this time more on the downside. we think it will happen before year-end. alix: we are looking at a server that talks about profit expectations and how they are rolling over in a big way where can you hide out in a slowing profit expectation world when we
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are looking at maybe in 2022 negative earnings revisions? mike: that is what people have been doing since march, hiding out in earnings stability. quality stocks that have outperformed since march. there are three factors that go into the quality of variable. number one is earnings stability , financial leverage, and return on capital. what the market gravitated back to is bank stocks, large-cap growth stocks that have delivered on earnings. we think that is more dangerous now because those stocks in particular, technology have benefited from the work from home phenomenon. we think that groups sets up for not having as much earnings stability as they have had in the past year. we would favor health, staples, utilities and reits. that has the best earnings stability factor without the risk of a payback in demand.
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guy: before we let you go, as you have said, you expect some sort of index level drop. looking at what's happening in the options market and what i see is a real pricing mismatch. puts are super expensive, because our supercheap. the market is buying protection on the downside. i wonder if the path from here is higher? the market knows it has the downside protested. you would have thought that would have been taken off the table. mike: our data would suggest something different. people are protected for a 5% to 10% move. if it gets going, it could be more than the typical 10%. maybe money continues to come into the market and we flat line here, or we have something greater than 10%. our data suggest people are not prepared for something like that.
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either way, the risk reward for the index right now is not very good, why we are trying to help clients do the right things with value trades and pick stocks. guy: always a pleasure, mike. mike wilson, morgan stanley's chief u.s. equity strategist. coming up, investors ignore electronic arts' small issue in terms of the games released pre-christmas. we got a four-week delay on the next big gain. the market was freaked out by that. this is bloomberg. ♪
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>> it is time for the bloomberg
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business flash. a version of its debut sedan has been confirmed as a longest range electric vehicle ever. the company says the agency i wanted a rating of 520 miles of range, more than the tesla model x. lucid plans to build less than 500 cars with those specifications. the push for a $15 minimum wage may have stalled in congress but the type labor market is making $15 that the factor minimum these days. many service sector industries crossed above the $15 starting wage threshold. employers such as target and walmart have increased their starting pay to $15 or more. guy: thank you. let's talk about what ea is up to, electronic arts delaying its
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next big game until november. it could have been worse. it is called battlefield 2042. at least we don't have to wait until then. dave wilson has the details. >> november 19, a four-week delay. there was speculation that there would be this delay. you saw electronic arts shares fall 5.7% in response. then the company came out and confirmed the speculation. there have been some talk about a postponement until next year, so november 19, you are set for the holiday shopping season with that timing. this battlefield game series, 90 million copies, so one of the franchises for electronic arts. when you take a step back and look at the company in context of the videogame industry, or
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what s&p calls interactive home entertainment, it has been a tough year for the group. last year, these companies were stay-at-home stocks. this year, people getting out more as the coronavirus pandemic becomes less of an issue. we have seen shares trail the media and entertainment category more broadly as well as the s&p 500. specifically looking at electronic arts, analysts expect a lot out of this company for the fiscal year ending in march. something like 20% earnings growth, sales growth, i should say. similar performance for the following year. it goes to show you how much something like battlefield 2042 might affect the company. alix: i remember being a reporter back in the day and covering the midnight releases of the games come around the
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block, running back, turning the package. do analyst projections pair up with electronic arts' own projections? dave: not exactly. in terms of the average survey, they are well above the company's own forecast for the current fiscal year. alix: really appreciate it, dave wilson. you may think oil prices are high, but investors are still not buying energy stocks in the same way that you might think with brent around $75. an interesting take on the why behind that. this is bloomberg. ♪
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alix: one chart i am watching today is cf industries, which is
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up over 2%. it had to shut down two u.k. plants due to higher natural gas prices. i feel like this is the first casualty, the real demand instruction that we are seeing based on these higher power prices. alix: you think about gas -- guy: you think about gas prices and you think about boiling a kettle or heating your house, but is a huge factor. the european chemicals sector, i know a number of houses are positive on this sector, should be in line for an uplift. consumers are spending a ton of money, you are at the beginning of a big investment cycle for industry. in theory, that should be great. but if each stocks grow through the roof, that will change the equation on that. the swiss chemical sector looks good, but this is where the pain
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could be felt. alix: fertilizer prices were already supply. this will make things even higher. how much demand has to outpace to make up for that? talking to jeff career earlier in the week, that was the only cure from his point of view for higher prices. i did catch up with mike wirth of sibron and said -- chevron and said that gas and natural gas prices are crazy. you are a huge producer, are you going to change your strategy? mike: current markets are interesting, but the long-term investment decision on something like lng is about our long-term view on markets and prices. we have a positive view on the role that gas will play in the energy system of the future. it will be an important and growing role. we are a big lng player today in australia, africa. we have worked on projects here
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in north america and continue to look at opportunities. those will be based on a long-term view, not necessarily the market conditions we see today. alix: it also speaks to the gap, not enough lng to go to europe, not enough storage for wind, shutting down the coal plants. do you think the energy transition will be harder and more inflationary than we thought? are we moving too fast or too slow? mike: it's a hard question to answer, too fast or too slow. the point that it illustrates, the existing system delivers the energy that we rely on in a way that is affordable, that is reliable, and has become cleaner over time. as we transition the system to a different mix, reliability and affordability matters. if costs go up, consumers don't like that.
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if reliability goes down, that creates problems. it's one of the reasons we have to be thoughtful about changing the mix. what we are seeing in europe right now is wind and solar are great, but if the sun is not shining or the wind is not blowing, people still need electricity. the alternate sources and how you manage the grid through the variations, which is much harder when these intermittent sources of power than things like nuclear or coal or natural gas that have a much more steady output, we have to find a way to manage that and not create risk for economies and citizens. alix: if you look at the price of lng, natural gas, oil, you should be investing a lot of money in those businesses. mike: if i knew that it would be x at a given point in future, we would make some wise decisions. alix: what i'm trying to get to is the price sick dull versus reality on the ground for a ceo
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of a major oil company. mike: we look out at the forward curve, not necessarily today's price, per se, but what are the markets telling us, what do our analysis tell us about the long-term. that is an important element in our investment decision-making. as it is indicative of a long-term trend, it means a lot to us. alix: would shareholders be on board? mike: right now, shareholders have not supported our sector as strongly as others through the recovery post-covid. i think part of that is this is a sector that has not shown the greatest capital discipline over the last decade or so, and we have heard about it as a sector from our shareholders. i think we are seeing companies begin to behave differently and shareholders are watching that, trying to hold companies to those words.
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to this point, i would say the market still seems to be judging whether or not they think that will stand up, because we have not seen the same recovery. in this commodity market, you might think that our sector would have been stronger than it has been. alix: you have the high prices, go invest. the equity not moving in the way you expect. where does that wind up leaving you? what will bring investors back to energy equities? mike: let me start with, i think the wrong thing to do in the short term is to ramp up spending. the market is saying we don't trust that you'll do that. that is why we have stayed disciplined and we will spend less than year that we had indicated in our budget. in terms of where you stand with shareholders, we try to lay out a straightforward strategy, getting high returns and sustaining those even in a low
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carbon world. we think that is a pretty straightforward message. our company has a history of capital allocation, m&a. we have increased our dividend payout for 34 consecutive years. we are the only major integrated company whose dividend is higher today than when covid occurred. and have repurchased shares 14 of the last years. we have a straightforward strategy that can give them confidence in the short-term and long-term. alix: will we see a supply that opec cannot plug at some point? mike: that is an issue to watch. in the short to medium-term, we still have opec and opec-plus bringing production back. long-term, if we get strong growth and we don't have reinvestments to bring new supply to the markets, we could see a tighter market. alix: that was part of my interview with mike wirth. what i found interesting is,
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mike is saying the oil market is broken, because the signal you are getting from the market is not what the oil companies are executing on. they are different in ways that were not before, and no one knows how that part will wind up playing out. guy: another part of the market that is broken, particularly the bond market. my take away from that conversation is he is cautious, and i wonder if that will be a problem. i wonder if this transition will accelerate. what we are seeing in europe will only further that. we will talk to the former boss of -- in the u.k. he says you are accelerating the transition, not slowing down. mike sounds cautious, we don't want to spend money, but maybe there is a danger this transition gets away from him. alix: for them, they are ramping
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up $10 billion of capex spend on this lower carbon technology, so that is huge compared to how quickly bp and total want to move. we could have that conversation later on today, talking about that energy transition on commodities edge at 1:00. some really interesting things to say on hydrogen. when there is increasing concerns of stagflation. we will be speaking to michael nicholas, oakmark funds portfolio manager. this is bloomberg. ♪
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>> this is bloomberg markets. you are looking at a live shot of the principal room. the cofounder of rent that one way -- the runway at 1:00. this is bloomberg. ♪
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guy: let's talk about what is happening down at cape canaveral. spacex is now doing it. four civilians into space for the first time last night, and they have actually gone into space, not just a little bit into space. they are beyond hubble. this is a huge step forward. furthering the space story, this is a huge step forward. bloomberg news' ed ludlow was there for the launch and joins us from cape canaveral. you are 14 miles away from the launch site. is that why -- were you worried, something that would go wrong? >> last night, i was two miles away.
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you could feel the ground shake as it lifts off. to be honest, everyone was worried. every space mission has an inherent risk. these are four amateur non-astronauts who had intense training. the dragon capsule is designed to be fully autonomous. collage complex has had glorious and traumatic history over the past decades, so after 13 minutes, they were on their way to that record orbit of 360 miles. it completely eclipsed everything that we have seen today from the likes of branson and bezos. alix: does any of this bring more money into space technology, investment into space? >> spacex says they are supply constrained, a backlog of demand for travel. what i'm hearing is you don't just call capital into space, you put it into the supply chain. everything from communications
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to transmitters and receivers. alix: great stuff, ed ludlow. that is the point. you could, for example, race to mars if you want, but it is not about getting to mars, it is the technology that you'll develop that you can use on a practical level. that is where the money will be made. guy: you have to take the first step, get to a point where you can actually launch those missions. i think these guys had six months of training. i think they are semi amateur status when it comes to them being astronauts. i can appreciate them not being professional astronauts, but i think they are ok. i would go up with six days training, let alone six months. they have gone a long way out and it looks cool. alix: would you get paid to do that, take a sabbatical? guy: that is a great question.
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i think ed ludlow is probably first in line, if anybody is. 14 miles away seems like a big margin for safety. alix: he would be a stowaway. let's bring in somebody to chat about it, michael nicholas, oakmark funds portfolio manager. about $17 billion under management. he would probably go to space as a stowaway, take a sabbatical? michael: i'm not sure about the risk quite yet. alix: the technology, when one goes into space is really where the business proposition is. i wonder if you look at the longer-term space, where is the undervalued opportunity there? michael: we don't have any exposure to space within the oakmark funds.
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we are value investors, we have a long time horizon, more focus on what the business will look like five to seven years from now then next quarter. their criteria for us are threefold. we want to buy businesses at significant discounts to intrinsic value. we want those teams to be managed by people that are well aligned with us, and we want them to grow over time. the names we are here to discuss today meet that criteria. guy: why is facebook undervalued? michael: the growth potential is significantly undervalued in our view but our thesis is more intricate. facebook trades at a market multiple of next year's consensus earnings. if you exclude that cash on their balance sheet, given where interest rates are, that alone seems unreasonable to us. companies with facebook's outlook should not be trading at average prices. facebook is investing a considerable amount of money
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into businesses that are not generating much revenue let alone profit. these businesses are weighing down the earnings of the company , masking the degree of undervaluation we see. let me give you an example. it's estimated 15% to 20% of the company's employees today were at the companies augmented reality business. they are investing in this because mark zuckerberg believes ar nvr will be the next major computing platform. we estimate the company is losing about $7 billion a year specifically within reality labs. quite a bit within whatsapp as well. if you don't add back these non-core losses, you are capitalizing a loss, describing negative value to several promising assets within facebook's portfolio. if you were to treat those as nonrecurring necessarily or
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invested in a venture capital fund, you can buy core facebook at a below multiple today. alix: something else in your portfolio are financials, capital one, allied financial, bank of america, citigroup. i wonder what the overall these this is for that when you have yields that are so low, it is hard to look at a yield curve and feel that we will see materials steepening anytime soon. michael: some of the names you mentioned had to be more interest-rate sensitive, would benefit more from the short end of the curve moving up. some other financials we have don't necessarily fit that mold. it is really an eclectic mix of different financial service companies that we think are cheap on a standalone basis. we are not trying to express one theme necessarily. guy: the thing that caught my eye that you wrote, you drew a
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line between facebook and wells fargo. i heard what you have to to say about facebook and some of the parts valuation, getting it as a discount. some people would like to see facebook broken up. elizabeth warren would like to see wells fargo broken up. that is the connection i would make between these two. draw the connection between facebook and wells fargo for me. michael: we believe both companies are significantly undervalued today. in the case of wells fargo, the stock trades at high single-digit multiples, and we think they have an opportunity to bring it more in line with their former self, other large banking peers. when you think about the risk reward of wells fargo, they have been through a tremendous amount over the last six years or so. when we think about the downside protection there, we believe at 130% of tangible book value, the
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stock is trading at a big gap appeared to where other money center banks are today. we don't believe their returns on common tangible equity will look for similar once they fix the expense base and get through the regulatory issues they are working through. the stock trades at a discount for somewhat obvious reasons, but we are confident, if you look out five years, the management team, which has clearly turned over, we'll be able to successfully transform the business into what use -- what we are used to seeing. alix: the mentions of stagflation on the terminal and google search i kind of going off the charts. now we are worried about that again after being worried about inflation a couple weeks ago. if we are in a stagflation environment for the next five years, does that change how you look at certain stocks? do you have to have a higher
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inflation growth potential to keep the portfolio you have? michael: no, as i was mentioning before, we don't attempt to position our portfolio for making shorter-term macro addictions. all of the additions and bets that we make are geared toward the long-term fundamental values of these businesses, how much cash flow we believe they will generate throughout their life. you or two of above or below trend really doesn't impact our fair value estimate for that materially. guy: great stuff, thank you. interesting to get specific. michael nicholas, oakmark funds portfolio manager. this is bloomberg. ♪
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alix: it is a flabby day here in
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the u.s. equity market. in europe, pretty good. really good group that joins us with a deeper dive. ritika: we seem to be shaping up into a broadly positive day in europe. the stoxx 600 up half a percent, rebounding from a seven-week low yesterday. in terms of sector action, it is travel and leisure, up 3.5%. ryanair, easyjet, airline stocks. let's take a look at the bottom of the pile, miners getting hit. iron ore was hammered in the singapore session. some of your base metals lower as well. i want to stay in the commodity space but look at natural gas prices. they have dropped significantly in the session today. this is after we have had a pretty strong rally, reaching record after record. dutch futures are dropping 14%
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or so today. we have been at elevated levels. lower gas inventories, expectations of a heavy winter to come. goldman sachs saying some of these industrial users have to curb their energy demand. cf industries closing two of their plants here in the u.k. let's take a look at some of your movers on the day. ryanair up nearly 8% today after they boosted their five-year growth passenger outlook. the owner of zara getting an upgrade. even droll law, the utility company, extending losses to 1.6%. a lot of concern that spanish government will put caps on energy prices for consumers and maybe even face a windfall tax
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as well. guy: probably will be the future of the winter. it will be difficult. you bring up what is happening with gas prices today, they are coming down, norwegian supplies coming back, but we are seeing and easing uprise pressures. but the expectation is they will stay elevated throughout most of the winter. i think it be a tough winter not only for consumers and industry but also for those utilities. alix, that is the story. there is another story that is fun -- fun is the wrong word. infineon having to shut down a plant because of a helium balloon. alix: that for the chip shortage but pretty entertaining.
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>> that countdown is on in europe. this is burke markets: european close with guy johnson and alix
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steel. -- bloomberg markets guy: 30 until the close. what do you need to know out of europe. is coming down sharply in europe today. but soaring gas prices were singing two u.k. fertilizer plant to close temporarily. stocks also sliding. france is furious as australia ditches multibillion dollar submarine deal in failure of a new u.s., u.k., australia strategic packed. the eu's lack of geopolitical influence. we will talk about this later in the program. ryanair stock surgi


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