WEBVTT - Russian Oil, Markets, And The US Economy (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.439 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.319 at Bloomberg dot com slash podcast. Lots going on in 0:00:22.360 --> 0:00:25.560 these markets, especially in the commodities markets. Um, you are 0:00:25.560 --> 0:00:28.400 see natural gas features certainly higher, especially here in the 0:00:28.480 --> 0:00:31.440 United States natural gas up four point eight percent. That 0:00:31.560 --> 0:00:34.159 is significant because we've seen all this volatility in the 0:00:34.159 --> 0:00:39.280 European side, the US side not as developed of a market. 0:00:39.479 --> 0:00:43.839 Nevertheless up just shy. Yeah, there's certainly been a lot 0:00:43.840 --> 0:00:47.080 of volatility in energy markets, and I think the question 0:00:47.120 --> 0:00:49.080 here also is what is going to be in the 0:00:49.120 --> 0:00:51.720 next leg, not like the stock market lower, but the 0:00:51.760 --> 0:00:54.880 next leg higher for a lot of these oil and 0:00:55.080 --> 0:00:57.240 other energy market Yeah, we're looking at oil at one 0:00:57.240 --> 0:00:59.080 oh four. When you look at Brent, there is no 0:00:59.160 --> 0:01:02.760 better expert to talk to about this within Bloomberg Intelligence. 0:01:02.760 --> 0:01:05.520 Fernando Valley, thank you as always for joining us. We 0:01:05.600 --> 0:01:08.200 got to talk about these Russia issues. Bulgaria, Poland. But 0:01:08.280 --> 0:01:10.520 before we do that, I have a very important question 0:01:10.560 --> 0:01:15.039 to ask you. Have you seen Mamma Mia. I have not. 0:01:15.520 --> 0:01:17.360 I mean I saw the movie back in the day 0:01:17.400 --> 0:01:22.319 with Pierce Proston, but not the show noted. All right, well, Fernando, 0:01:22.640 --> 0:01:25.480 we appreciate that. Don't worry. It'll all make sense in 0:01:25.520 --> 0:01:28.680 about eight minutes when I asked that question. But Fernando, 0:01:28.760 --> 0:01:31.120 let's talk about these headlines coming out of Russia. Essentially 0:01:31.200 --> 0:01:35.360 natural gas flows halted to Poland and Bulgaria. Germany very 0:01:35.440 --> 0:01:40.600 vocal about perhaps supporting a oil ban if it's gradual. 0:01:41.319 --> 0:01:46.120 Why are oil prices not jumping on those headlines? I 0:01:46.160 --> 0:01:49.120 think the biggest concern is what's happening with China and 0:01:49.160 --> 0:01:53.320 the lockdown step we're seeing throughout um throughout the eastern 0:01:53.360 --> 0:01:56.160 part of the country. How that will reap your cards 0:01:56.200 --> 0:02:01.040 in UH, in supply chains and in consumption. The Chinese 0:02:01.120 --> 0:02:04.280 consumption of oil has already decreased, but if we see 0:02:04.320 --> 0:02:07.640 more inflation because of supply chain disruptions and the rest 0:02:07.640 --> 0:02:11.920 of the world, that really puts puts a hammer blow 0:02:11.960 --> 0:02:17.760 to to consumption of oil and gas globally, speaking of 0:02:17.800 --> 0:02:20.080 global oil and gas and perhaps you can give us 0:02:20.760 --> 0:02:23.200 a way to frame the thinking here as a world 0:02:23.560 --> 0:02:28.360 so much of Europe tries to turn away from Russian energy, 0:02:29.240 --> 0:02:33.960 what progress, what might we see in in the nearer term. Well, 0:02:34.280 --> 0:02:37.680 it's very challenging in the short term to turn completely 0:02:37.680 --> 0:02:41.519 off Russian gas, uh, specifically because it's so difficult to 0:02:41.800 --> 0:02:45.120 move gas across oceans. You have to liquefy it. It's 0:02:45.320 --> 0:02:50.480 very costly and it takes time to build out more capacity. UM. 0:02:50.680 --> 0:02:53.560 Oil is a little bit easier. But as as vladimire 0:02:53.600 --> 0:02:55.960 Putting is already showing you, he's not gonna let you 0:02:56.000 --> 0:02:59.040 cut oil without cutting gas. So you're you're going to 0:02:59.160 --> 0:03:02.800 be in a tough spot, UH if you if you 0:03:03.080 --> 0:03:06.480 give up natural gas in the short term. Today European 0:03:06.600 --> 0:03:12.280 inventories are only around of capacity. Uh. Brussels wants to 0:03:12.280 --> 0:03:14.440 fill it up. To how your blast had a nice 0:03:14.440 --> 0:03:18.320 piece on it today, UM about it? And the only 0:03:18.360 --> 0:03:21.880 way to get and be prepared in case of a 0:03:21.960 --> 0:03:25.600 very cold winter in Europe or a winter without a 0:03:25.600 --> 0:03:28.519 lot of wind power, would be to fill out those 0:03:28.560 --> 0:03:31.320 inventories up. And you need Russian gas to do that. 0:03:31.520 --> 0:03:34.320 There's only so much that us. LOOKI fied natural gas 0:03:34.400 --> 0:03:37.240 can do in the short term, or even Qatari uh 0:03:37.280 --> 0:03:41.119 in Australian we just don't have the the spot cargoes 0:03:41.200 --> 0:03:44.680 to to to reach that level of capacity for Europe 0:03:44.880 --> 0:03:48.560 without relying at least in part on Russian gas. Fernando, 0:03:48.600 --> 0:03:50.920 let's put the oil piece of the equation on ice 0:03:51.080 --> 0:03:52.680 for a second, just given we're looking at one O 0:03:52.800 --> 0:03:56.240 four on brand literally a down one tenth of one percent. 0:03:56.360 --> 0:03:58.240 That is not the kind of oil vultility we've seen. 0:03:58.280 --> 0:04:01.240 I'm very focused on the natural ass pace because, like 0:04:01.280 --> 0:04:03.800 I said at the top of the segment, Russia and 0:04:03.960 --> 0:04:06.920 halting those gas flows to polland Bulgaria claiming that it's 0:04:06.960 --> 0:04:09.720 because they're not paying in rubles. You do, of course 0:04:09.760 --> 0:04:13.080 have other European buyers also agreeing to pay in rubles. 0:04:13.080 --> 0:04:15.360 Just given the dependence and for our US audience, the 0:04:15.440 --> 0:04:19.680 significance of natural gas in Europe is so important to 0:04:19.880 --> 0:04:22.560 underscore because this is how they heat their homes. If 0:04:22.560 --> 0:04:25.360 anyone's ever been to London in the winter, you will 0:04:25.440 --> 0:04:28.240 understand why this is such a big deal. If you 0:04:28.240 --> 0:04:32.360 don't have natural gas to heat your homes, that's going 0:04:32.440 --> 0:04:34.440 to be a problem going into the end of this year. 0:04:34.520 --> 0:04:36.479 Now we know a lot of these European authorities have 0:04:36.560 --> 0:04:39.000 said they're trying to reduce Russian dependence by the end 0:04:39.000 --> 0:04:42.039 of the year. Dan Jurgen Uh, an oil historian and 0:04:42.120 --> 0:04:44.760 natural gas story and I should say, has said that 0:04:44.800 --> 0:04:47.920 plan by the end of the year seems intangible. He's 0:04:47.920 --> 0:04:51.239 looking at a five year um kind of time frame. Fernando, 0:04:51.320 --> 0:04:54.200 my question to you is where the United States natural 0:04:54.240 --> 0:04:57.760 gas exports fits into this. You mentioned the infrastructure is hard. 0:04:58.080 --> 0:05:00.480 You have to essentially take natural gas lit will find it, 0:05:00.600 --> 0:05:04.800 ship it on this tanker across the Atlantic Ocean, but 0:05:05.000 --> 0:05:08.119 we don't really have this market for it in the US. 0:05:08.279 --> 0:05:11.160 How long does it take to build out that market 0:05:11.200 --> 0:05:14.760 so that the US can come and provide those exports 0:05:14.760 --> 0:05:18.560 that Russia can no longer provide. Well, I think you 0:05:18.680 --> 0:05:21.039 framed it beautifully and I think you know you will 0:05:21.040 --> 0:05:25.400 take at least five years to see a significant increase 0:05:25.400 --> 0:05:29.800 in capacity. We have some capacity as being built um. Unfortunately, 0:05:30.320 --> 0:05:32.960 the way that we had trended with the energy transition, 0:05:33.000 --> 0:05:37.159 we've made it more difficult to build natural gas pipelines. Today. 0:05:37.200 --> 0:05:40.080 A lot of our capacity sits in Louisiana, for example, 0:05:40.360 --> 0:05:44.479 that doesn't have a significant natural gas production anymore, and 0:05:44.560 --> 0:05:47.279 you'd have to bring that from Oklahoma or from Texas, 0:05:47.760 --> 0:05:50.840 UM and other regions. So we need to develop the 0:05:50.920 --> 0:05:54.360 inside infrastructure as well, and that will mean a reversal 0:05:54.400 --> 0:05:57.360 of some of the recent push to make pipelines more 0:05:57.360 --> 0:06:00.600 difficult to be built UM. It will also likely mean 0:06:00.720 --> 0:06:04.279 that we need to expedite the regulatory process for some 0:06:04.360 --> 0:06:07.919 of these l en G plants so we can build 0:06:07.920 --> 0:06:10.320 them more quickly UH and get them to the market. 0:06:10.760 --> 0:06:13.800 The beauty is that we have a significant resources of 0:06:13.880 --> 0:06:18.080 natural gas throughout the US. We have the Marcellus in Ohio, 0:06:18.600 --> 0:06:22.279 Western Pennsylvania and so forth. We have the Permian in 0:06:22.320 --> 0:06:25.400 West Texas, and we have several other plays that can 0:06:25.480 --> 0:06:29.080 give us significant supply, and so does Canada. So we 0:06:29.160 --> 0:06:32.200 could be long term providers not just to Europe but 0:06:32.240 --> 0:06:35.440 to other parts of the world. And in fact, natural 0:06:35.480 --> 0:06:39.440 gas has been the biggest reason why we've decreased UH 0:06:40.160 --> 0:06:44.200 we decreased emissions globally the switch from coal to natural gas. 0:06:44.200 --> 0:06:47.200 So it's really an important part of the energy transition, 0:06:47.680 --> 0:06:50.040 and I think in three to five years we could 0:06:50.080 --> 0:06:55.120 make it also a significant part of energy security. Fascinating 0:06:55.160 --> 0:06:58.880 stuff Fernando Valley, and for those of you who are listing, 0:06:58.960 --> 0:07:01.240 I did promise a mom a Mia reference. I threw 0:07:01.279 --> 0:07:04.680 Fernando off at the beginning and said, uh, did you 0:07:04.720 --> 0:07:06.880 listen to it? Fernando is one of my favorite films. 0:07:07.000 --> 0:07:10.120 But I think how you framed this oil and gas 0:07:10.600 --> 0:07:14.040 kind of conflict is so significant. Fernando Valley of Bloomberg Intelligence. 0:07:14.040 --> 0:07:16.840 We thank you, as always Channelli. This is all gonna 0:07:16.840 --> 0:07:19.040 make sense in thirty seconds. Our radio listeners are being like, 0:07:19.520 --> 0:07:22.200 I don't know, I know, but I have a surprise 0:07:22.240 --> 0:07:23.600 and I want you guys to stick with me for 0:07:23.680 --> 0:07:27.360 thirty seconds. But I think what's so significant about the 0:07:27.400 --> 0:07:30.600 other stuff that Fernando was really talking about is that 0:07:31.120 --> 0:07:33.960 we're caught. It's a catch twenty two in terms of 0:07:34.000 --> 0:07:36.520 ramping up these exports when Europe is kind of running 0:07:36.520 --> 0:07:38.480 down the clock. You know, I think the Bloomberg headline 0:07:38.520 --> 0:07:42.200 on this makes everything wrapped up in just one sentence, 0:07:42.400 --> 0:07:45.600 making energy a weapon, and it truly in this war, 0:07:45.760 --> 0:07:48.680 energy has become one. And it really comes down to 0:07:48.800 --> 0:07:51.000 the currency picture, as while we know the ruble weakening, 0:07:51.080 --> 0:07:53.600 a lot of the funds in these payments are supposed 0:07:53.640 --> 0:07:56.960 to be happening in rubles according to those Russian authorities. 0:07:57.440 --> 0:08:00.440 The dollar still stronger, folks, We're looking at x y 0:08:00.520 --> 0:08:04.200 one oh three handle. These technical levels are something to watch. 0:08:04.880 --> 0:08:08.200 E're a weakness, Japanese week end weakness. I told you 0:08:08.240 --> 0:08:10.520 the Aba reference would make sense. Thanks for sticking with me. 0:08:10.560 --> 0:08:13.560 For those of you who did, like, we're dancing to 0:08:13.640 --> 0:08:18.200 Fernando by Aba, a prominent song in Mamma Mia. We 0:08:18.280 --> 0:08:22.640 of course appreciate Fernando Valley's intelligence and grateful that he 0:08:22.680 --> 0:08:31.440 was named Fernando. M Tech earnings dominating the conversation when 0:08:31.440 --> 0:08:34.200 it comes to the stock market. We had Microsoft, we 0:08:34.200 --> 0:08:37.160 had Alphabet, we get Meta after the bell, Amazon and 0:08:37.679 --> 0:08:42.000 Apple as well. Coming in tomorrow on RUG rona senior 0:08:42.000 --> 0:08:44.760 software analyst with Bloomberg Intelligence joins us right here from 0:08:44.760 --> 0:08:48.840 the Interactive Broker Studio. On RUG you had some brilliant 0:08:48.920 --> 0:08:52.160 comments about the liquidity picture of some of these big 0:08:52.200 --> 0:08:56.280 tech names that used to be such a positive for 0:08:56.280 --> 0:08:58.360 for for a lot of these companies, especially in this 0:08:58.440 --> 0:09:00.960 idea of kind of weather ring. A lot of these 0:09:01.000 --> 0:09:03.559 inflation pressures, supply chain pressures. Well, don't worry about it. 0:09:03.600 --> 0:09:06.600 Apple has so much money on their bouncies to cushion 0:09:06.640 --> 0:09:10.120 that blow now kind of a negative perhaps in this 0:09:10.160 --> 0:09:13.640 inflationary environment. So I mean, if you think about it, 0:09:13.760 --> 0:09:16.560 a lot of these tech companies have massive powers in 0:09:16.679 --> 0:09:20.320 terms of to counter inflation for their products. So from 0:09:20.320 --> 0:09:23.480 that point, I'm not concerned. I think the concern comes 0:09:23.520 --> 0:09:27.560 in when investor expectations are not met in some of 0:09:27.600 --> 0:09:29.800 these areas. Now, one of the things I've said is, 0:09:29.840 --> 0:09:32.600 I think it is ludicrous to think about that big 0:09:32.640 --> 0:09:36.040 tech is not immune to any global slowdown. I really 0:09:36.080 --> 0:09:40.000 never understand why people think that. However, they still fear 0:09:40.040 --> 0:09:44.080 better than an average SMP company because the products that 0:09:44.160 --> 0:09:46.960 they sell I would say majority of these large companies 0:09:47.320 --> 0:09:50.240 is critical to the client base. So from that point, 0:09:50.320 --> 0:09:53.800 like you know, look at Microsoft's results yesterday. Now, if 0:09:53.800 --> 0:09:56.160 they would have slowed down by just two or three percent, 0:09:56.559 --> 0:09:58.440 the stock would have been off quite a bit. And 0:09:58.520 --> 0:10:01.199 that's the part I don't understand, because eventually it will 0:10:01.240 --> 0:10:04.240 slow down, right well, speaking of the slowdown, and you 0:10:04.360 --> 0:10:07.280 definitely are not seeing that in Microsoft stock today, right, 0:10:07.320 --> 0:10:09.640 So what does this mean in terms of what can 0:10:09.679 --> 0:10:12.920 be expected from a firm like Microsoft where cloud is 0:10:13.000 --> 0:10:16.319 king In the next couple of quarters. So from that point, 0:10:16.400 --> 0:10:19.160 I still think the top line is going to slow down. 0:10:19.240 --> 0:10:22.719 The third comparisons these businesses as they become big, the 0:10:22.800 --> 0:10:26.120 law of large number kicks in. You cannot grow these businesses. 0:10:26.120 --> 0:10:28.640 I mean the cloud business, for example, of Microsoft, at 0:10:28.640 --> 0:10:32.480 the rate of forty five forever. It's just not, you know, 0:10:32.640 --> 0:10:36.079 possible from this simple maths point of view. But other 0:10:36.240 --> 0:10:39.360 other areas are a little bit more resistant. Now, if 0:10:40.160 --> 0:10:43.840 office grew twelve percent, let's say it's gonna grow eight percent, 0:10:44.080 --> 0:10:47.280 So what it's still growing? I mean, that's the part 0:10:47.320 --> 0:10:50.480 I don't get you me and I think a lot 0:10:50.520 --> 0:10:54.000 of Bolish tech investors at the moment, I'm curious about 0:10:54.040 --> 0:10:55.959 the m and A of it all. Because Microsoft has 0:10:56.000 --> 0:11:00.280 also very notably created this activision deal. I think, I 0:11:00.320 --> 0:11:02.400 want to say, over seventy billion dollars off the top 0:11:02.400 --> 0:11:05.280 of my head, is it going to do more? Right? 0:11:05.360 --> 0:11:07.680 You have this incentive to spend the money. A five 0:11:07.760 --> 0:11:09.520 year old could tell you that if your dollar is 0:11:09.559 --> 0:11:12.959 worth less tomorrow, you buy that lollipop today. What is 0:11:13.000 --> 0:11:16.319 the Microsoft equivalent of that lollipop. It's it's a very 0:11:16.440 --> 0:11:19.320 very good question. And I always wonder that when the 0:11:19.400 --> 0:11:22.440 regulators are going to get to Microsoft also because sooner 0:11:22.520 --> 0:11:25.640 or later they will. Um. They are the one company 0:11:25.679 --> 0:11:29.200 that have been able to acquire UM companies while the 0:11:29.280 --> 0:11:32.080 others are a little bit more cautious. So then begs 0:11:32.120 --> 0:11:34.079 the question, well, what do you do with the sixties 0:11:34.120 --> 0:11:37.160 sixty five billion pre cash flow that you're generating? I 0:11:37.280 --> 0:11:40.080 do you pay used dividend? Which is it still happened 0:11:40.080 --> 0:11:42.360 a little bit, but the bulk of that, in my view, 0:11:42.440 --> 0:11:46.199 is going to go to buy backs. Grana senior software 0:11:46.400 --> 0:11:49.760 analyst with Bloomberg Intelligence. We keep throwing curveballs at him 0:11:49.760 --> 0:11:51.840 and he keeps knocking it out of the park. As 0:11:51.920 --> 0:11:53.800 Tom Keane would say, that's as close to baseball as 0:11:53.840 --> 0:11:57.079 I get. I don't watch baseball, but I do love 0:11:57.080 --> 0:11:59.839 watching Microsoft today. It is a fascinating story, and we 0:12:00.000 --> 0:12:02.000 thank Rod for me here. Yeah, And you know, I 0:12:02.440 --> 0:12:05.000 think it's also a huge deal to just talk about 0:12:05.320 --> 0:12:08.800 can you actually compose or is just transpose what you're 0:12:08.800 --> 0:12:11.439 seeing in Microsoft and Alphabet to these other tech companies. 0:12:11.480 --> 0:12:14.400 At the end of the day, UM, they're so different 0:12:14.760 --> 0:12:17.680 when it comes to their business up models, when it 0:12:17.679 --> 0:12:19.400 comes to their supply chains, when it comes to their 0:12:19.440 --> 0:12:23.000 cash picture. There is simply just a lot going on. We're, 0:12:23.000 --> 0:12:24.840 of course, I'm gonna keep you updated on all of that, 0:12:24.880 --> 0:12:31.280 all the stock moves these markets, folks. Is I mean, 0:12:31.280 --> 0:12:33.839 there's just really something to witness your volatility here the 0:12:33.920 --> 0:12:37.880 vix handle at a thirty two. The story isn't about 0:12:38.200 --> 0:12:40.560 do you play tech? Do you not play tech? Our 0:12:40.640 --> 0:12:43.680 evaluations too high? Not too high. A lot of the 0:12:43.720 --> 0:12:47.160 conversation is what do you do if you have recession? 0:12:47.520 --> 0:12:51.120 The word recession in your vocabulary, whether you're in Europe, 0:12:51.160 --> 0:12:53.240 whether you're in China, or whether you're right here in 0:12:53.280 --> 0:12:56.160 the United States, cushioned by some of that stimulus that's 0:12:56.160 --> 0:12:58.679 really been perhaps keeping the economy float for a while. 0:12:58.720 --> 0:13:02.079 We're gonna ask all these questions to our very own 0:13:02.240 --> 0:13:05.600 guests here. Um, if you give me a second, Alex 0:13:05.679 --> 0:13:08.600 shall Off, co head of Investment Strategies, coming from burnst 0:13:08.720 --> 0:13:13.480 in Private Wealth Management, Alex, I'm confused, why are stocks dropping? 0:13:13.559 --> 0:13:17.840 Why is tech dropping? If they're the haven in this 0:13:18.080 --> 0:13:23.160 storm of inflation and growth? Critty, It's all about what's 0:13:23.160 --> 0:13:26.000 going on in the interest rate market. Clearly, the Fed 0:13:26.160 --> 0:13:30.439 has a monumental task ahead of them. They've got too 0:13:30.720 --> 0:13:34.600 slow inflation by raising rates, but they can't go enough 0:13:35.120 --> 0:13:38.200 that they put the US into recession. And that's what 0:13:38.320 --> 0:13:40.760 investors are most concerned about. It's that balance. Can they 0:13:40.800 --> 0:13:43.440 get it right? Why don't you tell me? Can they 0:13:43.440 --> 0:13:46.680 get it right? It's hard. I don't want to say 0:13:46.720 --> 0:13:49.320 that there's a high degree of confidence. That's clearly what 0:13:49.360 --> 0:13:52.080 the markets pricing in is that there's a lot of 0:13:52.120 --> 0:13:57.679 doubt skepticism about, Uh, can they nail it? The real question, frankly, 0:13:58.200 --> 0:14:00.680 is what happens if they if they get it wrong, 0:14:01.200 --> 0:14:03.800 do they Are they able to pull it back fast 0:14:03.920 --> 0:14:09.000 enough um to correct themselves? Uh? Is frankly a very 0:14:09.080 --> 0:14:11.840 short recession? Could that be the answer to solve the 0:14:11.880 --> 0:14:15.040 inflation problem? A lot of question marks. That's part of 0:14:15.040 --> 0:14:18.320 the reason why you're seeing the markets behave the way 0:14:18.320 --> 0:14:20.720 that they are, Not just the equity markets, by the way, 0:14:20.880 --> 0:14:23.160 there's been a lot of stress and turmoil and the 0:14:23.160 --> 0:14:25.800 fixed income markets as well. So I think that the 0:14:26.080 --> 0:14:28.880 answer is remains to be seen. But clearly the market 0:14:28.920 --> 0:14:32.880 is saying no, but okay, So walk us through that. 0:14:32.920 --> 0:14:35.520 For folks who perhaps don't watch the minute mint to 0:14:35.560 --> 0:14:38.240 minute ticks of the bond market, what does getting it 0:14:38.280 --> 0:14:41.400 wrong look like in a market that perhaps is getting 0:14:41.520 --> 0:14:44.760 more and more hawkish, and the actual Federal Reserve is itself. 0:14:44.880 --> 0:14:48.920 There's so much conversation about markets investors getting ahead of 0:14:48.960 --> 0:14:52.120 what Chairman Powell was even thinking. If you're pricing in 0:14:52.160 --> 0:14:55.960 these moves and then the Fed executes, what's the problem here? 0:14:56.000 --> 0:14:59.960 Where could this go wrong? That you are? You nail 0:15:00.080 --> 0:15:03.480 that in the idea that the market is is hyper 0:15:03.560 --> 0:15:07.360 sensitive to every single word that Chair Powell says, and 0:15:07.360 --> 0:15:10.840 on multiple occasions, if you really read between the lines, 0:15:10.880 --> 0:15:16.040 he's telling us relax, everybody, just relax. Um. He he 0:15:16.160 --> 0:15:19.200 understands the stress of the moment and how each one 0:15:19.280 --> 0:15:21.520 of these signals that he provides to the market is 0:15:21.880 --> 0:15:24.840 stressed a hundred and fifty different ways. Um, what could 0:15:24.880 --> 0:15:26.800 it look like if he gets it wrong? If if 0:15:26.840 --> 0:15:30.200 the Fed moves too much on the overnight rate, I 0:15:30.240 --> 0:15:33.200 think you'll see continued stress in the fixed income markets. 0:15:33.600 --> 0:15:38.120 You know, a ten year today at two seventy five 0:15:38.280 --> 0:15:42.200 neighborhood there there's a school of thought that says we 0:15:42.360 --> 0:15:44.840 end the year with a ten year at to seventy five, 0:15:45.480 --> 0:15:47.680 and while we continue to push short rates up, that's 0:15:47.720 --> 0:15:50.720 a much flatter yield curve. So there's a lot of 0:15:50.840 --> 0:15:53.840 investment opportunity that's created with a flat yield curve. When 0:15:53.840 --> 0:15:57.080 you're when you're going to a flattener, there's things called 0:15:57.800 --> 0:15:59.880 you know, you talk about people not paying attention minute 0:16:00.040 --> 0:16:02.320 by minute. So maybe this is two inside baseball, but 0:16:02.560 --> 0:16:05.640 you've got a bear flattener that that could be um 0:16:05.760 --> 0:16:08.520 uh caused damage in the bond marketing at a bull flatty, 0:16:08.680 --> 0:16:12.040 you have all kinds of different approaches. The point is, 0:16:12.080 --> 0:16:16.000 though interest rates are going up, the market is probably 0:16:16.320 --> 0:16:20.200 priced well in advanced We've priced in six twelve months 0:16:20.280 --> 0:16:23.200 from now, and and that's why the bond market actually 0:16:23.240 --> 0:16:26.200 provides an interesting investment opportunity on a go forward basis 0:16:26.560 --> 0:16:29.720 because you've already taken the hit, you've already paid the 0:16:29.720 --> 0:16:32.240 price of admission, if you will, and now as you 0:16:32.280 --> 0:16:35.040 sit back and clip yields that are much higher than 0:16:35.080 --> 0:16:37.920 they were six months ago, it's actually an interesting place 0:16:37.960 --> 0:16:40.280 to put capital. So to seventy five by the end 0:16:40.280 --> 0:16:43.000 of the year, which is actually exactly where we are 0:16:43.120 --> 0:16:46.560 right now on the tenure, we're exactly at two. I'm 0:16:46.560 --> 0:16:49.920 curious though, what the catalyst is to turn around some 0:16:49.960 --> 0:16:52.280 of this selling. Remember We're coming off of a pretty 0:16:52.320 --> 0:16:55.520 I think a historically bad quarter for bonds in terms 0:16:55.520 --> 0:16:57.800 of selloffs, and you just made the call the I guess, 0:16:57.840 --> 0:17:00.880 I guess the bull case for bonds, but once the 0:17:00.880 --> 0:17:03.760 catalysts were waiting for when it comes to equities in 0:17:03.800 --> 0:17:06.520 an environment, I might add where we're seeing a much 0:17:06.680 --> 0:17:11.439 much stronger dollar, there's a number of catalysts uh for 0:17:11.520 --> 0:17:13.199 the equity market. And maybe this is a little bit 0:17:13.240 --> 0:17:16.800 of a gentrarian call, but I think there's likes Okay, 0:17:16.840 --> 0:17:21.000 here we go. Um. I would say jobs, watch the 0:17:21.080 --> 0:17:25.200 job's number. That job openings is a huge uh piece 0:17:25.240 --> 0:17:28.080 of information that we don't think it's getting a lot 0:17:28.119 --> 0:17:31.200 of attention, and it should. There are some eleven million 0:17:31.280 --> 0:17:35.240 open positions, there's some six and a half million people 0:17:35.280 --> 0:17:41.000 looking for that that spread that differential between open positions 0:17:41.000 --> 0:17:43.680 and people looking for positions, if you would go back 0:17:43.720 --> 0:17:47.880 over history and adjusted for for population inflation, it's never 0:17:47.960 --> 0:17:50.240 been higher. So that's a big number. You can't have 0:17:50.320 --> 0:17:53.280 a recession when you have this many open jobs to 0:17:53.720 --> 0:17:58.000 supply chain disruption. What if we are closer than many 0:17:58.080 --> 0:18:03.000 people suspect to aolving the supply chain disruption. If you 0:18:03.000 --> 0:18:06.760 look at congestion imports is interesting. I'm on the West Coast, 0:18:06.840 --> 0:18:09.200 so I look at l A and Long Beach. We're 0:18:09.280 --> 0:18:13.320 down from the peak from the number of container ships 0:18:13.359 --> 0:18:17.040 at UH Long Beach in l A. But what's interesting 0:18:17.080 --> 0:18:20.920 is there's a new category called slow speed steaming. This 0:18:21.040 --> 0:18:24.280 came from our Global Logistics Research Group, and this is 0:18:24.480 --> 0:18:29.840 we've never seen more ships hanging around under slow power. 0:18:30.320 --> 0:18:33.359 If if you think about the slowdown that's happening in China, 0:18:33.400 --> 0:18:37.320 shouldn't say slow down the shutdown, zero COVID shutdown. What 0:18:37.480 --> 0:18:40.679 if they're going to stop production and stop sending US 0:18:40.720 --> 0:18:43.800 cargo ships that we can't even unload anyways, and we're 0:18:43.840 --> 0:18:46.879 able to work through this excess inventory and then have 0:18:47.000 --> 0:18:48.920 them rebuild it so we could be on the other 0:18:48.920 --> 0:18:51.520 side of the supply chain disruption as well. Alex shell 0:18:51.560 --> 0:18:53.800 off with the contrarian call. We thank him as always, 0:18:53.800 --> 0:19:00.720 first time. We're gonna have you back soon. Let's bring 0:19:00.720 --> 0:19:04.640 an Anna Wong, chief US economists for Bloomber Economics. Anna, 0:19:04.720 --> 0:19:07.439 thank you so much for joining us. Where do we 0:19:07.520 --> 0:19:10.560 go from here in terms of the strength of the 0:19:10.600 --> 0:19:14.600 American consumer? I felt like the narrative really the summer 0:19:14.800 --> 0:19:18.639 of one. So about maybe six nine months ago was 0:19:19.119 --> 0:19:21.399 this is when the effects of fiscal stimulus is going 0:19:21.440 --> 0:19:23.000 to wear off. This is when you're going to see 0:19:23.000 --> 0:19:28.400 that deceleration in consumer spending. Are we there yet? I 0:19:28.480 --> 0:19:32.560 don't think we're there yet. So American household balance sheet 0:19:32.760 --> 0:19:36.400 is at a forty year low. And even though it's 0:19:36.440 --> 0:19:39.639 true that some of those savings are being run down 0:19:40.119 --> 0:19:44.320 and the impact of those fiscal stimulus checks would be 0:19:44.359 --> 0:19:50.200 wearing out, it's still still American household half the runway 0:19:50.200 --> 0:19:54.680 on the balance sheet to either continue to or expand 0:19:55.000 --> 0:19:58.560 credit because the real interest rate, in fact is still 0:19:58.600 --> 0:20:04.200 negative because interest rate is still below inflation. And also 0:20:04.440 --> 0:20:11.200 that for the UM top forties sixty percentile in terms 0:20:11.200 --> 0:20:15.239 of income. Uh, those households still have a lot of 0:20:15.280 --> 0:20:18.080 excess savings. And those are the ones who are pivoting 0:20:18.119 --> 0:20:23.440 towards more vacations, consumer and restaurants, going out to movie theaters. 0:20:23.880 --> 0:20:27.240 Um so, so there's still a lot of consumption. Um yeah, 0:20:28.200 --> 0:20:31.120 if you will in the US economy. You know, I'm 0:20:31.160 --> 0:20:33.280 gonna steal a line from Pretty because she said it 0:20:33.320 --> 0:20:35.760 a few times and it makes me laugh. The china 0:20:35.880 --> 0:20:38.880 of it all. What about the lockdowns? That are happening 0:20:39.040 --> 0:20:41.600 that you see in China, and then also kind of 0:20:41.640 --> 0:20:44.600 these renewed fears about COVID, how might FATS start to 0:20:44.680 --> 0:20:50.280 throw things here in the US off the track it's on. Yeah, 0:20:50.359 --> 0:20:54.160 So you know, the biggest risk to the US economy, indeed, 0:20:54.320 --> 0:20:58.480 is coming from abroad, from both China and Europe. China's 0:20:58.560 --> 0:21:04.280 lockdown has to effects on inflation. On one hand, it's 0:21:04.520 --> 0:21:09.679 very inflationary because of remuge supply chain bottlenecks. But on 0:21:09.720 --> 0:21:14.639 the other hand, China is a huge commodity demand UH nation. 0:21:14.760 --> 0:21:17.399 In in in the whole world, it accounts for over 0:21:17.480 --> 0:21:21.919 fifty of demand for a lot of commodities categories. So 0:21:22.040 --> 0:21:25.240 for Chinese GDP growth to plunge like what what we 0:21:25.240 --> 0:21:29.400 are seeing right now, means that commodity prices ahead would 0:21:29.440 --> 0:21:33.439 be falling, or at least there would be inflationary force 0:21:33.840 --> 0:21:38.280 on commodities to fall, whereas um on the other side, 0:21:38.480 --> 0:21:42.000 you know, the lockdown, would it be inflationary. So on net, 0:21:42.119 --> 0:21:47.520 what is the impact on US especially It depends on 0:21:47.680 --> 0:21:51.760 whether US demand for good especially good produced by China, 0:21:51.960 --> 0:21:55.679 is softening. And we have been seeing signed since the 0:21:55.840 --> 0:22:01.680 end of February that US helpful demand of cars or 0:22:01.920 --> 0:22:08.439 and UH furnishing, household furnishing perils. You know, electronics, stuff 0:22:08.480 --> 0:22:12.880 that China produce is being softening, and part of that 0:22:13.000 --> 0:22:16.520 is related to the fact that demand is rotating from 0:22:16.560 --> 0:22:20.840 goods UH two services and we have we have bought 0:22:20.840 --> 0:22:23.600 too much electronics over the last few years. Working from 0:22:23.640 --> 0:22:26.199 home and now we're going back to office, we have 0:22:26.280 --> 0:22:30.119 left need for that. So that means that whatever inflationary 0:22:30.160 --> 0:22:34.920 shock coming from China's lockdown would produce a smaller pass 0:22:35.040 --> 0:22:39.760 through than the same degree of um you know, lockdown 0:22:39.800 --> 0:22:43.160 that we have seen last year. So there's there's there's 0:22:43.200 --> 0:22:47.280 there's reasons to be optimistic, slightly more optimistic about this 0:22:47.480 --> 0:22:50.640 round of supply chain shocks from China. Well, let's bring 0:22:50.680 --> 0:22:53.480 in the other major risk, right the war in Ukraine. Here. 0:22:53.640 --> 0:22:55.359 I believe we have some headlines come out this morning. 0:22:55.359 --> 0:22:58.920