tv Bloomberg Markets Americas Bloomberg May 17, 2022 10:00am-11:00am EDT
>> from the financial centers of the world, this is "bloomberg markets" with alix steel and guy johnson. alix: 30 minutes into the u.s. trading day on this tuesday, may 17. top stories at this hour, definitely walmarts wiped out, first quarter profit falling short of estimates is higher inflation and labor costs scattered earnings. but no consumer cracks, solid retail sales show shoppers were still buying from furniture to cocktails, how long does that last? and bank of america's fund
manager survey shows a pile of cash the highest in the 21 years. we speak to the marathon asset chairman and ceo to find out where he is putting money to work. from new york, i am alix steel, my cohost in london, guy johnson. for all the spreading, we are buying stuff. guy: yes, it seems. you look at the walmart numbers, focused on the middle, emergent squeeze right now. that seems to be the story at the moment. looking at the sales numbers up at the top, still looks pretty good, just the middle of the bottom that is slightly problematic. the retail sales data pointing as in that direction. the consumer has yet to crack, yet you listen to a member of goldman sachs, he says we are running on fumes, and the reason is consumers were already starting to increase leverage. when does the consumer crack? that is our question of the day.
let's start with michael mckee, our international economic and policy correspondent, and we also have a senior analyst of consumer staples and retail from bloomberg intelligence. jen, when does the consumer crack? is there any evidence in today's number that it is already happening? jen: i think it depends on what consumer you're talking about here it if talking about low income consumers, we are starting to see the edges. so went walmart talks about the trade down, and middle income and upper income, not there yet. alix: mike, how do you square the strong retail number in certain areas with the consumer confidence at a decade low? are we going to see some catch up here in terms of retail sales slowing? michael: that is a question we are going to know after time. i go back to what alan greenspan once said, we watch what they
say, not what they do. the interesting thing is people are still buying stocks. there is only one category for services, eating and drinking places, and it was pretty strong across the board. guy: what do you make of this idea that we are starting to see it done on leverage come a pushing the idea that consumer credit is picking up and the consumer is struggling, and that is the indicator you want to look for, that is the lead indicator? michael: it is starting to pick up. but how far do they go? we know people still have savings. they have not spent it all done yet, from the pandemic assistance. and household incomes are holding up fairly well. salaries continuing to rise. as long as that is happening, people tend to spend on what they are earning. so they think they're still going to be doing ok, still going to be spending. alix: jen, the sales outlook for walmart is actually a bit that
are, same-store sales about 4% revenue gained. does this account at all for the fed having to hike and presumably usher in some kind of demand destruction? did we get any color about that? jen: not specifically, but when you are looking at top lines, you cannot discuss the role inflation is playing. so even if people are still buying and are going into stores, walmart said the actual units in the cart are going down a little bit. when you get topline growth off of that, it is an inflation play coming through that will drive that top line, and then hopefully as they resolve supply chain issues and cost issues, it will help in terms of bottom line, as well. jonathan: what do we see on that level from home depot? trying to get clues into the housing market. from my perspective, fewer people are shopping, but when their shopping, they are
spending more. what does that tell us about what is happening at home depot or what will happen in the future, and what about the housing market beyond that? jen: when really looking at the consumer, it is about what strata system you're talking about. home depot, consumers who have the discretionary to spend, they are still spending, and they are going into stores. it is a complicated consumer landscape. it is hard to say about the housing market, not really my area, but when i look at the consumer landscape, i see a for cash and happening that is probably set to continue over the short term. -- ica bifurcation happening. alix: 10 basis points up on the two-year, ok, consumer is ok, you can hike more. but that will hurt. the lower end consumer is
already heard buy inflation. michael: the fed will have to watch it. retail sales are continually revised. an and the end of the month, we will get the personal consumption numbers and services. 50 basis points is what they have told us in the next two meetings, so you will want to wait for the july numbers before we make predictions on what the fed might do next. guy: jen, we have seen gasoline rising dramatically year on year come up some 36% in terms the price people are paying. maybe some signs of stabilization at the moment. are we going to be at the point sooner people will drive less to stores? and how will that impact behavior versus shopping locally or driving a little further -- what impact does the ghastly increase have? jen: when gasoline goes up, it does impact people's decision-making about where and how to shop. historically, when we see gas prices rise, we see
consolidation occur. so people are looking to fill more needs in fewer stops. that said, local is still very important, so the retailers that are closest to you in the proximity are the ones who generally win in that environment. but consumers do not really have a choice in terms of the gas. people are going back into offices and are commuting more. those costs will continue to elevate. so we may see that true consolidation accelerates faster than we might have seen historically. alix: walmart stock got hit hard. do you have a readthrough for other retailers or is the emergent issue a specific walmart problem? -- is the margin issue a specific walmart problem? jen: the margin issue is a moment problem. but we have target tomorrow,
which is much more heavily general merchandise oriented than walmart. so if there is weakness in general merchandise, that may be a target. next week we have tjx, off-price retailers, and they should be doing well with inventories, so it will be a question of how much traffic they are getting into the stores. guy: mike, from the fed's point of view, you answered this earlier, but i want to come from a different angle, the fed will have to get more nuanced in how they think about the consumers. the consumer is a large part of the u.s. economy. are we going to be looking at this from a sort of totality point of view? or is the fed going to be most worried about the most vulnerable in society? is the fed going to play a social role in this, and as the consumer starts to crack in the most vulnerable feel the effects, is that going to have a disproportionate effect? where is the fed just thinking
about this from 30,000 feet, an inflation problem and we need to think about the consumer in totality? wondering how nuanced the fed's thinking will be here. michael: it is interesting because the fed is being criticized for being too socially caring during the last year when they tried to get the unemployment rate down for minorities, i the expense of possibly inflation. but you have to remember, their only tool is a very blunt tool, and that is interest rates. so we may hear from fed officials that they are worried about people on the margins, people who are going to be affected the most. but there's not much they can do to make a difference in what socioeconomic group is affected buy their monetary policy. so they're going to focus on inflation and try to bring it all down and hope the rising tide of a stable economy will lift all boats. alix: we appreciate the roundup here.
alix: walmart's start getting hit today despite the overall stock market still higher. the question, when does the consumer crack question mark mark stoeckle, adams funds ceo, retail has an 8% weight in his per folio and owns names like costco, target, and home depot. the question, when does the consumer crack? mark: it is a good question. i think certainly we learned some things today with the walmart results and retail sales come about there are other things coming up, target tomorrow, costco next week. i think it is the beginning of having an idea of what is happening with the consumer, but i think it is way too early to make decisions in your portfolio
on what to do as a result of the consumer with these results. guy: mark, what would you normally expect to happen in terms of the way that these various retailers are positioned into a downturn? and do you think this one will fit into the normal pattern? mark: i do not have any reason to believe it will not be a normal pattern. but i mean is that with inflation, the have to control what they can control, and that is costs. what we saw today with walmart is i think the most important message is not the consumer. i think walmart had an execution miss, period. revenue was good, same-store sales were good, but a lot of costs and a lot of things you might not expect walmart to do really hurt their results. so from this report, i would say
that the low end consumer is in look pretty good shape. slowing, as you saw with retail sales. it is the fourth print in a row that has been positive, but they have been lower each of the last four months. so that is what the fed wants to see, what we all want to see, slowing as opposed to a stop. alix: to that point, talking about walmart and the execution issue, you own costco and target, for example, are you anticipating something similar from them, and what is your investment strategy around that when they come out with numbers? mark: i would like to think that target will execute better than walmart did. we own more target than walmart, own more costco than target. the hierarchy for those three for us, costco, target, then walmart. our expectation is that target tomorrow and costco next week will execute better. who knows, frankly, but that is
our expectation. guy: who would you normally expect to execute best in a recession? mark: i would have expected walmart because of their breadth to be able to manage this a little better, frankly, they're the biggest. they employed the most people, have depth. the pilgrimage to their headquarters, if you are selling something, you know you will get beat up. they are good at it. so i would have expected little better out of them. costco historically has been a great, great operator. so in looking at the two together, i would expect costco be able to perform better in this kind of environment. alix: two days ago, the question of the day would be like, do you invest for a recession or how do you prep for a recession?
when do we see the peak in inflation? raised on those kind of questions, now married with a better consumer than we may have thought, what is the best allocation you have right now in equity? mike: you mean equities, as opposed to -- within equities? alix: within equities, how do you hedge for possible recession risks and higher inflation while keeping track of a stronger u.s. consumer? mark: i think you default to who executes the best. again, i mentioned costco. i think costco is among the best. that said, target really did turn themselves around the last couple of years and has also been executing well. and talking about executing within inflation, it is trying to get your pricing right while making sure you are able to control your costs. walmart did not do this. we expect something different from both target and costco. guy: what does the gasoline price due to this a question?
i can drive to a costco and buy a lot of stuff. i may make savings as a result. but my cost to get there might be greater. how do consumers reconcile that equation? gas prices are up significantly, therefore they probably do not want to drive as far. that when they get to where they are going, they may get a better deal. how does that work? mark: a great question. i cannot say i know exactly how it happens. but one thing that is curious is that driving to costco or target and walmart, the same way. target, interestingly, you do not have to drive as far generally for that. so there consumer is closer to their stores. but i think it is a hard, that is a hard thing to try to really understand, how much you are going to gain by getting someone
there because it costs money to get there. not sure i have a good answer. alix: last question, the market interpreted the retail number as more rates from the fed, higher rates, front end selling off, the two-year popping. what is your best call right now for higher yields, a top pick? mark: best call, i keep coming back to execution. i think rates will continue to go up, yes. i think what you described portends that. it is important that you focus on companies that are delivering, that have executed, and can control the costs. for us, clearly, it is costco and target. guy: interesting. target executing well and without the range factor that may be other stores have.
alix: session off .5 percent for twitter. elon musk's says he will go ahead with the takeover, however the social media platform needs to verify its claim about the number of fake accounts. joining as is bloomberg's ed ludlow. can twitter actually do that? ed: about this whole thing, on april 26 when elon musk agreed to buy twitter, he waived the
due diligence. and the language twitter uses in regulatory filings, lesson 5% of users being bots, with the caveat the number could be higher or hard to estimate, has always been that way. april 25 was a long time ago now. the idea that there was a lack of understanding to musk is hard. elon musk has been tweeting a lot, his opinion visible, but he cited the ceo in saying he refused to give some of the data behind twitter's methodology. and if you look at the ceo's tweets, he points out that they met with elon musk week ago, before the tweets hit, before the miami conference and the comments were they explained the methodology, so it is one man's inference. guy: people often argue about other things when they really mean something else. you and i could argue about one
thing, but really we are talking about something else. $54.20, is that the number we should be looking at, does anybody think the deal will get done at that price anymore? ed: one thought is that elon musk is trying to walk away from the deal altogether. the middleground is that this is a tactic to be able to come back to the negotiating table and come in with a lower offer. $54.20, the spread on your screen right now, we are far from that based on where twitter stock is trading, down for an eighth consecutive day, the worst streak since the end of 2021. final price, we do not know, but there is a growing voice in the market that this is what you do, you try to bring the bid price back down. alix: so what happens now? seems that they are at an impasse. now what? ed: amidst the noise, twitter did file its proxy tuesday morning and recommended that
shareholders vote to accept elon musk's bid at 54 does $.20. they want to proceed with the deal as planned. meantime, twitter is trying to reorganize internally, shine a light under elon musk as a private company. again, if you do not set up an alert for elon musk twitter account for every time he tweets, that is the most up-to-date information we have right now. guy: is the musk funding plan also changing? there are some suggestions he might sell other shares to fund this deal. maybe not as many as before, but he is looking at other options. ed: last week, thursday, friday, sources said he is out in the market trying to get cofinancing, increase the equity portion of the deal. then there was reporting monday that internally within spacex, employees are basically tendering shares of their own. that is private stock.
spacex has made it more liquid. and there is an idea that elon musk is part of that, selling some of his private stake in spacex to fund this, but we do not know that for certain. we just know there are insiders at spacex looking to sell the private shares. alix: what is the over/under on if elon musk just walks away and pays $1 billion? ed: i do not know, but i think we are moving in a direction where he walks away that is what i am hearing and what the market is telling us based on the spread and probability odds. guy: ed ludlow, thank you very much. joining us from san francisco. coming up, bruce richards is the ceo of madison asset management, and he has lots to say about where we go next. this is bloomberg. ♪
>> about one hour into the u.s. trading session. consumer staples getting hit. abigail doolittle is tracking this for us. abigail: the s&p 500 up 1%. the nasdaq 100 doing better. these stocks, piper sandler saying its tautness early: the bottom of the big decline for chips. this taking a look at chip stocks. certainly happening on the day and yields higher on some of the strong economic data sales not hurting tech in particular
stocks. that's interesting dynamic we haven't seen. let's go into the terminal and take a look at what's happening on the nasdaq 100. we are looking at the 12 month rolling price target for analysts and looking at the nasdaq 100 itself. using the nasdaq 100 is lagging. nonetheless is there some sort of a deep bottom down there that would suggest the nasdaq 100 can bounce up to some level near where analysts are paid we are not certain that can happen but it is certainly a possibility and may suggest there is a brighter future ahead. there is one for airlines based on commentary out of united airlines. they updated their guidance to the upside of the summer. you can see this for united, delta and we also have american higher. some of the cruise operators going as well to the upside on this idea the travel demand remains very strong.
alex talking about consumer staple being under pressure. here it is for walmart and at this point home depot. home depot of course had been higher, but walmart rising prices really eating in to first quarter earnings despite the sales feet. the forecast brought down need to have fuel and food. home depot they meet and they raised the stocks flipping around now. not exactly sure what is behind that but it's interesting to see, need to have a nice to have. guy: it is interesting. it's amazing, looks at walmart was an execution issue. pointing us in that direction. consumer numbers actually look fairly good today but the numbers coming down. thank you very much indeed. let's look at what's happening in retail and what's going on with the consumer. how much longer can the consumer keep going?
goldman sachs chief economist, shoppers in the u.s. are already relying on leverage. >> there clearly has been some real leveraging to some degree, but i don't think that's going to be the last thing support for spending. consumer spending will be slow. income is going to be quite weak in 2022. guy: speaking to us a little bit earlier speaking to us now is bruce richards. marathon is a $24 billion global credit manager. bruce is keeping a careful eye on what's happening. what do you make of the numbers today. what did you make of what walmart told us? >> retail sales up 1% thereabouts. it's a bit of a trick and this is why. the consumers not buying more.
if you go to home depot, a consumer's walkout the store with less, but they spent a lot more because prices were up a lot. take this for example. retail sales and not inflation sales, it's a nominal number. cpi we recently had showed month over month airline ticket prices went up 18%. ticket prices are part of retail sales. so imagine if there's one item you have in your entire retail sales flying from new york to l.a. and this month cost 18% more. the same exact ticket you bought, it's nonsensical. retail sales are doing better because it's not inflation-adjusted. we saw with home depot and amazon is inventory built around 20 to 30%, that's a scary concept. they built and sold less but
they made more. that's why they will be better from here. the result is apsley right. consumer debt has exploded off that. people are for -- morgan more against credit cards. it's plump to their low 6%. plunged from 100 to 59 now. alix: consumers not a good place. that's your take away. yet we see materials up, the idea is they will have to act more aggressively because inflation is high. if what you say is true, what kind of policy mistake are we heading for. what does it look like in six months. higher rates in a more aggressive fed. bruce: the policy mistake was already made. the fact the trillions were dumped into the system through
the various stimulus packages in the fed running up its balance sheet. bernanke said it well, they said the fed waited way too long. as powell says the pain is going to have to come. they have six or eight to go. treasuries have moved nicely. equities declined about 20% and the market widened a few hundred basis points. high yield is now down from low yield of 4% more reasonable high yields around seven or 8%. what we see in the marketplace is the markets have adjusted. there was heavy volumes in the last couple of weeks. is a lot of capitulation. a market rally which we're entering right now. but the best is yet to come in terms of the downside. we lost 25 trillion in terms of the system and that adds value in the debt equity market.
and liquidity over the course of the year will get worse. the fed has no choice to get inflation under control and to start the tightening program. guy: can we go back to liquidity issue. it will get worse, how much worse is it going to get? bruce: they've only tightened twice, they only raise 100 basis points. what do you think happens later this year when the markets become thinner, when the fed is raising rates six or eight times, when they are now selling 1.1 trillion of treasuries and that pace for an annual basis. and so what happens then. liquidity gets worse, we haven't had a vacuum of liquidity where the market really gaps lower and there's no bid and we will move
to that before this is over. alix: what does that look like in the stock market and what does that look like in the private market. bruce: the stock market for higher earnings as i was, higher earnings and higher spot prices -- stock prices. going 20% this year. all of 2021's gains. indeed this is already happened. equity markets are fine from here. to test 10,000 on the nasdaq. and probably around 3600 on the s&p which is down around 10%. multiples subtracted from 21.5 to about 17 and going down to very reasonable 14 to 15 before this is said and done. there's a first couple of innings.
it's less about employment. we were talking about that earlier. one or 2% of the employment were to deteriorate to get inflation under control, 100% has to spend on food and fuel and everything else. that's ravishing america and punishing savings and causing consumers to take on more data. guy: let's cover the debt story from a different angle. you talked about the yield you're now getting in high yield , a 6%, 7%. how high do you think that number gets on the back end of this year. what are you going to be buying? bruce: we are starting to dip
arto -- dipping our toe. you have a strong revit equity response behind you. those yields were around 4%, 5%, 6% and now it's a reasonable rate. again, i think the markets are stabilized for now, they will rally. but you will have a recession before this is all said and done because the soft landings too hard orchestrate and with that recession fall rates will go from less than 1% to in excess of 5% where is it will go. the high-yield market will probably go to 10% at that point. we have a lot of dry power -- dry powder. we have a pretty brilliant job in the 2021 period adjusting ourselves around high-yield
direct lending and distress. we performed quite well. profits we've recently taken. and so i think we will have a second big bite of this apple is more traditional where the fed can bail out of the recession because there's tightening to control inflation. alix: does the distress sovereign debt market, we to question from a viewer if you're planning opportunities and distress sovereign debt in the emerging market. bruce: less about emerging markets. more front of mind now is we are buying quality and investment grade in the emerging markets. same thing in high yield.
now let's talk about the sovereign question bread when i think about sovereign i'm thinking about more. a little bit more about what i'm seeing in europe and the widening it spreads. the ecb has been buying trillions and trillions of treasuries and driving rates to negative yields and now beginning next month we stop buying treasuries. so what's happening, it is widening. portugal has widened. that's where one to keep our eye on is the widening of spreads in the european countries and that's probably the biggest risk factor we will see because there's 27 countries in the eu and these will fall into recession. germany and italy and spain, you will see a few countries in europe falter recession. it's good to very low growth if
they don't have the strength and demand coming from europe. guy: are we going to see another debt crisis? is that what you're pointing us in the direction of? italy's debt is increased massively. if we're going to have no growth, servicing that debt will be a problem. particularly as mario draghi is about to step aside pride bruce: i will need a lot more information to make that call. i'm just saying we are watching that very closely and understanding as the u.s. flips into recession sometime next year, europe is probably there this year, at a time when the ecb has got to arrest inflation, they are on the front line in terms of energy costs and other inflation that they imported onto the continent. it's a very precarious place that's not really being discussed right now and we are
capitulation. >> that's one of the most important takeaways. we saw so many funds had favorites in private -- previous quarters. one of the examples we saw a lot of higher cost than other investors. carvana is another one where were seeing very poorly in the first part of the year. others start to sell out as that's struggling firm has started to create some worries. i do want to point out some of the macro trends. as you take a look, energy financials being bought. hedge funds are buying at a greater rate for example than the rest of the investment industry. i wanted to talk about some of the most sold and bought names.
bank of america, occidental, citigroup were among some of the biggest sellers in the investment firms. warren buffett was a big buyer of those. looking at what kinds of hedge funds they are doing in this environment, the long short managers. some of them doing well. it's heavenly not all of them. stocked out by surprise in the market. it's really the macro funds at the end of the day which is not there that are by and large doing well in the most recent environment. guy: there is pain, but is it real or manageable or problematic? >> there's a couple reasons, there still a lot of leverage in the system. if you look at the prime brokerage data is how much does that hurt the cost of leverage
starts to go up as well. to your point we talked to bruce richards. liquidity in the market but that looks for, these stocks as well as others as well. think about how much these funds tried to diversify into private markets that are not even started to see the brunt of the pain the public market has seen and to go the market to market losses burn these players as well. guy: bank of america -- alix: in part, cash behind what we've seen in 21 years paid we have a sense of how much cash with these hedge funds being deployed. >> we are seeing such significant losses in the first four months of the year. if you look at melvin capital looking to a restructuring plan. you don't pay money managers to hold onto cash and that's the reality of it and the question
is if you will live in the family office world and otherwise is cash still trash or is it worth having the dry powder. >> may be an opportunity later this year. great stuff as ever. some breaking news crossing the bloomberg terminal. the covid-19 alert status in new york city has now been raised to high. are we about to get back into an environment where masks are required? what is the trajectory, what kind of numbers will we be looking at in 2, 4, 6 weeks time. we will look at that later in the next hour. he is the ceo, they crunch the covid numbers prayed we will find out what he is seeing. this is bloomberg. ♪
>> time for the bloomberg business flash. home depot boosted its outlook for the year after a surprise increase in third-quarter revenue. 2.2% continued strong demand for home improvement supplies despite rising interest rates. customer transactions fell but the average ticket increased. it could be one of the world biggest listings this year. saudi aramco is considering an initial public offering of its trading arm amid a boom -- boone in oil prices. photo giant yeti -- getty images, they have signed a multiyear deal with candy digital. the companies will develop a
range of nft products for almost 500 -- from their most 500 million images. that's the latest business flash. guy: it is interesting. spac's having a tough time of things. crypto having a tough time as well. let's stick with what's happening in digital assets. bitcoin just above $30,000 right now. i think the biggest problem food bitcoin came from a problem earlier this week. talking about the fact that it's just too hard to transact and it's too difficult to transact in bitcoin. it's never good to be a bigger story. at the give to take a step back. any a world where energy is becoming more problematic what is the future of bitcoin look like. alix: is it blockchain or bitcoin or stable coin or ethereum. mark of ubs said investors
should not call a bottom in these highly speculative assets. that's different from weeks ago where investor set up no growth anywhere you have to go there no matter what because if you see growth in five or 10 years it will be in that area. one i'm sure they will be talking about today. our bloomberg crypto show coming up. you will hear from the cofounder of a theory him who definitely do not miss that. alix: -- guy: shameless plug as kailey leinz would say. let's take a look at where european assets, quite a big day here in europe. stocks are up high. the action is really elsewhere. the cable rate jumping quite sharply. we got unemployment data today that really suggests the bank of england will have to do more. 19 basis point move jacking up
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guy: european stocks are higher but i think the actions in the bond market. most of the cbn bank of england. we will talk about those stories prayed the countdown to close starts right now. >> the countdown is on in europe. this is bloomberg markets: european close. with guy johnson and alix steel. guy: 30 minutes of the closing europe. european stocks are big. up around