Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Lots going on in
Speaker 1: these markets, especially in the commodities markets. Um, you are
Speaker 1: see natural gas features certainly higher, especially here in the
Speaker 1: United States natural gas up four point eight percent. That
Speaker 1: is significant because we've seen all this volatility in the
Speaker 1: European side, the US side not as developed of a market.
Speaker 1: Nevertheless up just shy. Yeah, there's certainly been a lot
Speaker 1: of volatility in energy markets, and I think the question
Speaker 1: here also is what is going to be in the
Speaker 1: next leg, not like the stock market lower, but the
Speaker 1: next leg higher for a lot of these oil and
Speaker 1: other energy market Yeah, we're looking at oil at one
Speaker 1: oh four. When you look at Brent, there is no
Speaker 1: better expert to talk to about this within Bloomberg Intelligence.
Speaker 1: Fernando Valley, thank you as always for joining us. We
Speaker 1: got to talk about these Russia issues. Bulgaria, Poland. But
Speaker 1: before we do that, I have a very important question
Speaker 1: to ask you. Have you seen Mamma Mia. I have not.
Speaker 1: I mean I saw the movie back in the day
Speaker 1: with Pierce Proston, but not the show noted. All right, well, Fernando,
Speaker 1: we appreciate that. Don't worry. It'll all make sense in
Speaker 1: about eight minutes when I asked that question. But Fernando,
Speaker 1: let's talk about these headlines coming out of Russia. Essentially
Speaker 1: natural gas flows halted to Poland and Bulgaria. Germany very
Speaker 1: vocal about perhaps supporting a oil ban if it's gradual.
Speaker 1: Why are oil prices not jumping on those headlines? I
Speaker 1: think the biggest concern is what's happening with China and
Speaker 1: the lockdown step we're seeing throughout um throughout the eastern
Speaker 1: part of the country. How that will reap your cards
Speaker 1: in UH, in supply chains and in consumption. The Chinese
Speaker 1: consumption of oil has already decreased, but if we see
Speaker 1: more inflation because of supply chain disruptions and the rest
Speaker 1: of the world, that really puts puts a hammer blow
Speaker 1: to to consumption of oil and gas globally, speaking of
Speaker 1: global oil and gas and perhaps you can give us
Speaker 1: a way to frame the thinking here as a world
Speaker 1: so much of Europe tries to turn away from Russian energy,
Speaker 1: what progress, what might we see in in the nearer term. Well,
Speaker 1: it's very challenging in the short term to turn completely
Speaker 1: off Russian gas, uh, specifically because it's so difficult to
Speaker 1: move gas across oceans. You have to liquefy it. It's
Speaker 1: very costly and it takes time to build out more capacity. UM.
Speaker 1: Oil is a little bit easier. But as as vladimire
Speaker 1: Putting is already showing you, he's not gonna let you
Speaker 1: cut oil without cutting gas. So you're you're going to
Speaker 1: be in a tough spot, UH if you if you
Speaker 1: give up natural gas in the short term. Today European
Speaker 1: inventories are only around of capacity. Uh. Brussels wants to
Speaker 1: fill it up. To how your blast had a nice
Speaker 1: piece on it today, UM about it? And the only
Speaker 1: way to get and be prepared in case of a
Speaker 1: very cold winter in Europe or a winter without a
Speaker 1: lot of wind power, would be to fill out those
Speaker 1: inventories up. And you need Russian gas to do that.
Speaker 1: There's only so much that us. LOOKI fied natural gas
Speaker 1: can do in the short term, or even Qatari uh
Speaker 1: in Australian we just don't have the the spot cargoes
Speaker 1: to to to reach that level of capacity for Europe
Speaker 1: without relying at least in part on Russian gas. Fernando,
Speaker 1: let's put the oil piece of the equation on ice
Speaker 1: for a second, just given we're looking at one O
Speaker 1: four on brand literally a down one tenth of one percent.
Speaker 1: That is not the kind of oil vultility we've seen.
Speaker 1: I'm very focused on the natural ass pace because, like
Speaker 1: I said at the top of the segment, Russia and
Speaker 1: halting those gas flows to polland Bulgaria claiming that it's
Speaker 1: because they're not paying in rubles. You do, of course
Speaker 1: have other European buyers also agreeing to pay in rubles.
Speaker 1: Just given the dependence and for our US audience, the
Speaker 1: significance of natural gas in Europe is so important to
Speaker 1: underscore because this is how they heat their homes. If
Speaker 1: anyone's ever been to London in the winter, you will
Speaker 1: understand why this is such a big deal. If you
Speaker 1: don't have natural gas to heat your homes, that's going
Speaker 1: to be a problem going into the end of this year.
Speaker 1: Now we know a lot of these European authorities have
Speaker 1: said they're trying to reduce Russian dependence by the end
Speaker 1: of the year. Dan Jurgen Uh, an oil historian and
Speaker 1: natural gas story and I should say, has said that
Speaker 1: plan by the end of the year seems intangible. He's
Speaker 1: looking at a five year um kind of time frame. Fernando,
Speaker 1: my question to you is where the United States natural
Speaker 1: gas exports fits into this. You mentioned the infrastructure is hard.
Speaker 1: You have to essentially take natural gas lit will find it,
Speaker 1: ship it on this tanker across the Atlantic Ocean, but
Speaker 1: we don't really have this market for it in the US.
Speaker 1: How long does it take to build out that market
Speaker 1: so that the US can come and provide those exports
Speaker 1: that Russia can no longer provide. Well, I think you
Speaker 1: framed it beautifully and I think you know you will
Speaker 1: take at least five years to see a significant increase
Speaker 1: in capacity. We have some capacity as being built um. Unfortunately,
Speaker 1: the way that we had trended with the energy transition,
Speaker 1: we've made it more difficult to build natural gas pipelines. Today.
Speaker 1: A lot of our capacity sits in Louisiana, for example,
Speaker 1: that doesn't have a significant natural gas production anymore, and
Speaker 1: you'd have to bring that from Oklahoma or from Texas,
Speaker 1: UM and other regions. So we need to develop the
Speaker 1: inside infrastructure as well, and that will mean a reversal
Speaker 1: of some of the recent push to make pipelines more
Speaker 1: difficult to be built UM. It will also likely mean
Speaker 1: that we need to expedite the regulatory process for some
Speaker 1: of these l en G plants so we can build
Speaker 1: them more quickly UH and get them to the market.
Speaker 1: The beauty is that we have a significant resources of
Speaker 1: natural gas throughout the US. We have the Marcellus in Ohio,
Speaker 1: Western Pennsylvania and so forth. We have the Permian in
Speaker 1: West Texas, and we have several other plays that can
Speaker 1: give us significant supply, and so does Canada. So we
Speaker 1: could be long term providers not just to Europe but
Speaker 1: to other parts of the world. And in fact, natural
Speaker 1: gas has been the biggest reason why we've decreased UH
Speaker 1: we decreased emissions globally the switch from coal to natural gas.
Speaker 1: So it's really an important part of the energy transition,
Speaker 1: and I think in three to five years we could
Speaker 1: make it also a significant part of energy security. Fascinating
Speaker 1: stuff Fernando Valley, and for those of you who are listing,
Speaker 1: I did promise a mom a Mia reference. I threw
Speaker 1: Fernando off at the beginning and said, uh, did you
Speaker 1: listen to it? Fernando is one of my favorite films.
Speaker 1: But I think how you framed this oil and gas
Speaker 1: kind of conflict is so significant. Fernando Valley of Bloomberg Intelligence.
Speaker 1: We thank you, as always Channelli. This is all gonna
Speaker 1: make sense in thirty seconds. Our radio listeners are being like,
Speaker 1: I don't know, I know, but I have a surprise
Speaker 1: and I want you guys to stick with me for
Speaker 1: thirty seconds. But I think what's so significant about the
Speaker 1: other stuff that Fernando was really talking about is that
Speaker 1: we're caught. It's a catch twenty two in terms of
Speaker 1: ramping up these exports when Europe is kind of running
Speaker 1: down the clock. You know, I think the Bloomberg headline
Speaker 1: on this makes everything wrapped up in just one sentence,
Speaker 1: making energy a weapon, and it truly in this war,
Speaker 1: energy has become one. And it really comes down to
Speaker 1: the currency picture, as while we know the ruble weakening,
Speaker 1: a lot of the funds in these payments are supposed
Speaker 1: to be happening in rubles according to those Russian authorities.
Speaker 1: The dollar still stronger, folks, We're looking at x y
Speaker 1: one oh three handle. These technical levels are something to watch.
Speaker 1: E're a weakness, Japanese week end weakness. I told you
Speaker 1: the Aba reference would make sense. Thanks for sticking with me.
Speaker 1: For those of you who did, like, we're dancing to
Speaker 1: Fernando by Aba, a prominent song in Mamma Mia. We
Speaker 1: of course appreciate Fernando Valley's intelligence and grateful that he
Speaker 1: was named Fernando. M Tech earnings dominating the conversation when
Speaker 1: it comes to the stock market. We had Microsoft, we
Speaker 1: had Alphabet, we get Meta after the bell, Amazon and
Speaker 1: Apple as well. Coming in tomorrow on RUG rona senior
Speaker 1: software analyst with Bloomberg Intelligence joins us right here from
Speaker 1: the Interactive Broker Studio. On RUG you had some brilliant
Speaker 1: comments about the liquidity picture of some of these big
Speaker 1: tech names that used to be such a positive for
Speaker 1: for for a lot of these companies, especially in this
Speaker 1: idea of kind of weather ring. A lot of these
Speaker 1: inflation pressures, supply chain pressures. Well, don't worry about it.
Speaker 1: Apple has so much money on their bouncies to cushion
Speaker 1: that blow now kind of a negative perhaps in this
Speaker 1: inflationary environment. So I mean, if you think about it,
Speaker 1: a lot of these tech companies have massive powers in
Speaker 1: terms of to counter inflation for their products. So from
Speaker 1: that point, I'm not concerned. I think the concern comes
Speaker 1: in when investor expectations are not met in some of
Speaker 1: these areas. Now, one of the things I've said is,
Speaker 1: I think it is ludicrous to think about that big
Speaker 1: tech is not immune to any global slowdown. I really
Speaker 1: never understand why people think that. However, they still fear
Speaker 1: better than an average SMP company because the products that
Speaker 1: they sell I would say majority of these large companies
Speaker 1: is critical to the client base. So from that point,
Speaker 1: like you know, look at Microsoft's results yesterday. Now, if
Speaker 1: they would have slowed down by just two or three percent,
Speaker 1: the stock would have been off quite a bit. And
Speaker 1: that's the part I don't understand, because eventually it will
Speaker 1: slow down, right well, speaking of the slowdown, and you
Speaker 1: definitely are not seeing that in Microsoft stock today, right,
Speaker 1: So what does this mean in terms of what can
Speaker 1: be expected from a firm like Microsoft where cloud is
Speaker 1: king In the next couple of quarters. So from that point,
Speaker 1: I still think the top line is going to slow down.
Speaker 1: The third comparisons these businesses as they become big, the
Speaker 1: law of large number kicks in. You cannot grow these businesses.
Speaker 1: I mean the cloud business, for example, of Microsoft, at
Speaker 1: the rate of forty five forever. It's just not, you know,
Speaker 1: possible from this simple maths point of view. But other
Speaker 1: other areas are a little bit more resistant. Now, if
Speaker 1: office grew twelve percent, let's say it's gonna grow eight percent,
Speaker 1: So what it's still growing? I mean, that's the part
Speaker 1: I don't get you me and I think a lot
Speaker 1: of Bolish tech investors at the moment, I'm curious about
Speaker 1: the m and A of it all. Because Microsoft has
Speaker 1: also very notably created this activision deal. I think, I
Speaker 1: want to say, over seventy billion dollars off the top
Speaker 1: of my head, is it going to do more? Right?
Speaker 1: You have this incentive to spend the money. A five
Speaker 1: year old could tell you that if your dollar is
Speaker 1: worth less tomorrow, you buy that lollipop today. What is
Speaker 1: the Microsoft equivalent of that lollipop. It's it's a very
Speaker 1: very good question. And I always wonder that when the
Speaker 1: regulators are going to get to Microsoft also because sooner
Speaker 1: or later they will. Um. They are the one company
Speaker 1: that have been able to acquire UM companies while the
Speaker 1: others are a little bit more cautious. So then begs
Speaker 1: the question, well, what do you do with the sixties
Speaker 1: sixty five billion pre cash flow that you're generating? I
Speaker 1: do you pay used dividend? Which is it still happened
Speaker 1: a little bit, but the bulk of that, in my view,
Speaker 1: is going to go to buy backs. Grana senior software
Speaker 1: analyst with Bloomberg Intelligence. We keep throwing curveballs at him
Speaker 1: and he keeps knocking it out of the park. As
Speaker 1: Tom Keane would say, that's as close to baseball as
Speaker 1: I get. I don't watch baseball, but I do love
Speaker 1: watching Microsoft today. It is a fascinating story, and we
Speaker 1: thank Rod for me here. Yeah, And you know, I
Speaker 1: think it's also a huge deal to just talk about
Speaker 1: can you actually compose or is just transpose what you're
Speaker 1: seeing in Microsoft and Alphabet to these other tech companies.
Speaker 1: At the end of the day, UM, they're so different
Speaker 1: when it comes to their business up models, when it
Speaker 1: comes to their supply chains, when it comes to their
Speaker 1: cash picture. There is simply just a lot going on. We're,
Speaker 1: of course, I'm gonna keep you updated on all of that,
Speaker 1: all the stock moves these markets, folks. Is I mean,
Speaker 1: there's just really something to witness your volatility here the
Speaker 1: vix handle at a thirty two. The story isn't about
Speaker 1: do you play tech? Do you not play tech? Our
Speaker 1: evaluations too high? Not too high. A lot of the
Speaker 1: conversation is what do you do if you have recession?
Speaker 1: The word recession in your vocabulary, whether you're in Europe,
Speaker 1: whether you're in China, or whether you're right here in
Speaker 1: the United States, cushioned by some of that stimulus that's
Speaker 1: really been perhaps keeping the economy float for a while.
Speaker 1: We're gonna ask all these questions to our very own
Speaker 1: guests here. Um, if you give me a second, Alex
Speaker 1: shall Off, co head of Investment Strategies, coming from burnst
Speaker 1: in Private Wealth Management, Alex, I'm confused, why are stocks dropping?
Speaker 1: Why is tech dropping? If they're the haven in this
Speaker 1: storm of inflation and growth? Critty, It's all about what's
Speaker 1: going on in the interest rate market. Clearly, the Fed
Speaker 1: has a monumental task ahead of them. They've got too
Speaker 1: slow inflation by raising rates, but they can't go enough
Speaker 1: that they put the US into recession. And that's what
Speaker 1: investors are most concerned about. It's that balance. Can they
Speaker 1: get it right? Why don't you tell me? Can they
Speaker 1: get it right? It's hard. I don't want to say
Speaker 1: that there's a high degree of confidence. That's clearly what
Speaker 1: the markets pricing in is that there's a lot of
Speaker 1: doubt skepticism about, Uh, can they nail it? The real question, frankly,
Speaker 1: is what happens if they if they get it wrong,
Speaker 1: do they Are they able to pull it back fast
Speaker 1: enough um to correct themselves? Uh? Is frankly a very
Speaker 1: short recession? Could that be the answer to solve the
Speaker 1: inflation problem? A lot of question marks. That's part of
Speaker 1: the reason why you're seeing the markets behave the way
Speaker 1: that they are, Not just the equity markets, by the way,
Speaker 1: there's been a lot of stress and turmoil and the
Speaker 1: fixed income markets as well. So I think that the
Speaker 1: answer is remains to be seen. But clearly the market
Speaker 1: is saying no, but okay, So walk us through that.
Speaker 1: For folks who perhaps don't watch the minute mint to
Speaker 1: minute ticks of the bond market, what does getting it
Speaker 1: wrong look like in a market that perhaps is getting
Speaker 1: more and more hawkish, and the actual Federal Reserve is itself.
Speaker 1: There's so much conversation about markets investors getting ahead of
Speaker 1: what Chairman Powell was even thinking. If you're pricing in
Speaker 1: these moves and then the Fed executes, what's the problem here?
Speaker 1: Where could this go wrong? That you are? You nail
Speaker 1: that in the idea that the market is is hyper
Speaker 1: sensitive to every single word that Chair Powell says, and
Speaker 1: on multiple occasions, if you really read between the lines,
Speaker 1: he's telling us relax, everybody, just relax. Um. He he
Speaker 1: understands the stress of the moment and how each one
Speaker 1: of these signals that he provides to the market is
Speaker 1: stressed a hundred and fifty different ways. Um, what could
Speaker 1: it look like if he gets it wrong? If if
Speaker 1: the Fed moves too much on the overnight rate, I
Speaker 1: think you'll see continued stress in the fixed income markets.
Speaker 1: You know, a ten year today at two seventy five
Speaker 1: neighborhood there there's a school of thought that says we
Speaker 1: end the year with a ten year at to seventy five,
Speaker 1: and while we continue to push short rates up, that's
Speaker 1: a much flatter yield curve. So there's a lot of
Speaker 1: investment opportunity that's created with a flat yield curve. When
Speaker 1: you're when you're going to a flattener, there's things called
Speaker 1: you know, you talk about people not paying attention minute
Speaker 1: by minute. So maybe this is two inside baseball, but
Speaker 1: you've got a bear flattener that that could be um
Speaker 1: uh caused damage in the bond marketing at a bull flatty,
Speaker 1: you have all kinds of different approaches. The point is,
Speaker 1: though interest rates are going up, the market is probably
Speaker 1: priced well in advanced We've priced in six twelve months
Speaker 1: from now, and and that's why the bond market actually
Speaker 1: provides an interesting investment opportunity on a go forward basis
Speaker 1: because you've already taken the hit, you've already paid the
Speaker 1: price of admission, if you will, and now as you
Speaker 1: sit back and clip yields that are much higher than
Speaker 1: they were six months ago, it's actually an interesting place
Speaker 1: to put capital. So to seventy five by the end
Speaker 1: of the year, which is actually exactly where we are
Speaker 1: right now on the tenure, we're exactly at two. I'm
Speaker 1: curious though, what the catalyst is to turn around some
Speaker 1: of this selling. Remember We're coming off of a pretty
Speaker 1: I think a historically bad quarter for bonds in terms
Speaker 1: of selloffs, and you just made the call the I guess,
Speaker 1: I guess the bull case for bonds, but once the
Speaker 1: catalysts were waiting for when it comes to equities in
Speaker 1: an environment, I might add where we're seeing a much
Speaker 1: much stronger dollar, there's a number of catalysts uh for
Speaker 1: the equity market. And maybe this is a little bit
Speaker 1: of a gentrarian call, but I think there's likes Okay,
Speaker 1: here we go. Um. I would say jobs, watch the
Speaker 1: job's number. That job openings is a huge uh piece
Speaker 1: of information that we don't think it's getting a lot
Speaker 1: of attention, and it should. There are some eleven million
Speaker 1: open positions, there's some six and a half million people
Speaker 1: looking for that that spread that differential between open positions
Speaker 1: and people looking for positions, if you would go back
Speaker 1: over history and adjusted for for population inflation, it's never
Speaker 1: been higher. So that's a big number. You can't have
Speaker 1: a recession when you have this many open jobs to
Speaker 1: supply chain disruption. What if we are closer than many
Speaker 1: people suspect to aolving the supply chain disruption. If you
Speaker 1: look at congestion imports is interesting. I'm on the West Coast,
Speaker 1: so I look at l A and Long Beach. We're
Speaker 1: down from the peak from the number of container ships
Speaker 1: at UH Long Beach in l A. But what's interesting
Speaker 1: is there's a new category called slow speed steaming. This
Speaker 1: came from our Global Logistics Research Group, and this is
Speaker 1: we've never seen more ships hanging around under slow power.
Speaker 1: If if you think about the slowdown that's happening in China,
Speaker 1: shouldn't say slow down the shutdown, zero COVID shutdown. What
Speaker 1: if they're going to stop production and stop sending US
Speaker 1: cargo ships that we can't even unload anyways, and we're
Speaker 1: able to work through this excess inventory and then have
Speaker 1: them rebuild it so we could be on the other
Speaker 1: side of the supply chain disruption as well. Alex shell
Speaker 1: off with the contrarian call. We thank him as always,
Speaker 1: first time. We're gonna have you back soon. Let's bring
Speaker 1: an Anna Wong, chief US economists for Bloomber Economics. Anna,
Speaker 1: thank you so much for joining us. Where do we
Speaker 1: go from here in terms of the strength of the
Speaker 1: American consumer? I felt like the narrative really the summer
Speaker 1: of one. So about maybe six nine months ago was
Speaker 1: this is when the effects of fiscal stimulus is going
Speaker 1: to wear off. This is when you're going to see
Speaker 1: that deceleration in consumer spending. Are we there yet? I
Speaker 1: don't think we're there yet. So American household balance sheet
Speaker 1: is at a forty year low. And even though it's
Speaker 1: true that some of those savings are being run down
Speaker 1: and the impact of those fiscal stimulus checks would be
Speaker 1: wearing out, it's still still American household half the runway
Speaker 1: on the balance sheet to either continue to or expand
Speaker 1: credit because the real interest rate, in fact is still
Speaker 1: negative because interest rate is still below inflation. And also
Speaker 1: that for the UM top forties sixty percentile in terms
Speaker 1: of income. Uh, those households still have a lot of
Speaker 1: excess savings. And those are the ones who are pivoting
Speaker 1: towards more vacations, consumer and restaurants, going out to movie theaters.
Speaker 1: Um so, so there's still a lot of consumption. Um yeah,
Speaker 1: if you will in the US economy. You know, I'm
Speaker 1: gonna steal a line from Pretty because she said it
Speaker 1: a few times and it makes me laugh. The china
Speaker 1: of it all. What about the lockdowns? That are happening
Speaker 1: that you see in China, and then also kind of
Speaker 1: these renewed fears about COVID, how might FATS start to
Speaker 1: throw things here in the US off the track it's on. Yeah,
Speaker 1: So you know, the biggest risk to the US economy, indeed,
Speaker 1: is coming from abroad, from both China and Europe. China's
Speaker 1: lockdown has to effects on inflation. On one hand, it's
Speaker 1: very inflationary because of remuge supply chain bottlenecks. But on
Speaker 1: the other hand, China is a huge commodity demand UH nation.
Speaker 1: In in in the whole world, it accounts for over
Speaker 1: fifty of demand for a lot of commodities categories. So
Speaker 1: for Chinese GDP growth to plunge like what what we
Speaker 1: are seeing right now, means that commodity prices ahead would
Speaker 1: be falling, or at least there would be inflationary force
Speaker 1: on commodities to fall, whereas um on the other side,
Speaker 1: you know, the lockdown, would it be inflationary. So on net,
Speaker 1: what is the impact on US especially It depends on
Speaker 1: whether US demand for good especially good produced by China,
Speaker 1: is softening. And we have been seeing signed since the
Speaker 1: end of February that US helpful demand of cars or
Speaker 1: and UH furnishing, household furnishing perils. You know, electronics, stuff
Speaker 1: that China produce is being softening, and part of that
Speaker 1: is related to the fact that demand is rotating from
Speaker 1: goods UH two services and we have we have bought
Speaker 1: too much electronics over the last few years. Working from
Speaker 1: home and now we're going back to office, we have
Speaker 1: left need for that. So that means that whatever inflationary
Speaker 1: shock coming from China's lockdown would produce a smaller pass
Speaker 1: through than the same degree of um you know, lockdown
Speaker 1: that we have seen last year. So there's there's there's
Speaker 1: there's reasons to be optimistic, slightly more optimistic about this
Speaker 1: round of supply chain shocks from China. Well, let's bring
Speaker 1: in the other major risk, right the war in Ukraine. Here.
Speaker 1: I believe we have some headlines come out this morning.
Speaker 1: Germany ready to support the EU ban on Russian oil
Speaker 1: if it's gradually will there's something that you heard the
Speaker 1: French finance Mr Bruno LAMAI are very vocal about a
Speaker 1: couple of weeks ago. You also heard on the back
Speaker 1: of that JP Morgan calling for a hundred eighty five
Speaker 1: dollars on oil. And I was at Sarah Week a
Speaker 1: month about about a month ago, essentially one of the
Speaker 1: largest energy conferences in the world. We were talking about
Speaker 1: some of these oil ministers from around the world, and
Speaker 1: they were looking at two hundred dollar oil, three hundred
Speaker 1: dollar oil potentially on the table, not their base case,
Speaker 1: but potentially on the table. What does that do to
Speaker 1: American GDP. Yeah, So, so if oil indeed searched to
Speaker 1: one A two hundred, then we'll be seeing CPI inflation
Speaker 1: headline of nine and that will make the said much
Speaker 1: more hawkish. That had been talked last week about by
Speaker 1: one of the f OMC participants, UM flirting with the
Speaker 1: talks of bits grate hike. So if it's that Tennisinara
Speaker 1: comes to pas Us with loyal at two hundred dollars
Speaker 1: preparel seventies five, bits become a distinct possibility later this year,
Speaker 1: and of course that would squeeze see US economy much more.
Speaker 1: But still um Bloomberg Economics sees the chance of the
Speaker 1: session in the next twelve month as being very very
Speaker 1: low because of the for the reasons that I have
Speaker 1: said earlier that the household balant sheets are still very solid.
Speaker 1: You know, I'm wondering also, we're talking about the risk
Speaker 1: over session and even if it's further off than it
Speaker 1: was you know to some before, what about stagflation and
Speaker 1: how much is that a worry and how much does
Speaker 1: that start to impact both economic conditions and market conditions,
Speaker 1: you know, stagflation. Um. You know, if we're thinking about
Speaker 1: a stagflation, that's where where growth is stup one percent,
Speaker 1: between zero to one percent, and inflation at current rate,
Speaker 1: I still think that I still think that it wouldn't
Speaker 1: be um ah, it still has a lower probibility than
Speaker 1: growth being at one or two percent. That The main
Speaker 1: reason is because the US labor market is really strong.
Speaker 1: We're expecting to see on employment rate fall below three
Speaker 1: points five percent in the next couple of months. And
Speaker 1: you know, there's one point eight jobs open, jobs opening
Speaker 1: for every unemployed person, so those openings are not going
Speaker 1: to evaporate. And but then you know, in twelve months
Speaker 1: like that quickly. Uh So on the other hand, if
Speaker 1: we look um into deep into three, yeah, I can
Speaker 1: see groups flowing too, you know, one percent or below
Speaker 1: one percent. Um. So yeah, But at the same time
Speaker 1: I do see that inflation would be down from today's
Speaker 1: a point. I don't. I think it's um very likely
Speaker 1: that in flights it would be sticking around four percent
Speaker 1: next year, UM. And I don't think in flating of
Speaker 1: four percent and growth around like one percent would be
Speaker 1: a major staxation UM scenario. So yeah, below one percent
Speaker 1: growth potentially on the table. I mean, that's fascinating. Anna.
Speaker 1: Let me give you one last question here. Historically, if
Speaker 1: you go back, say fifty years, recessions have come about
Speaker 1: every three to five years. In the last two decades
Speaker 1: we've seen these eight, nine, ten year long expansions. Do
Speaker 1: you think we're going to go back to the historical
Speaker 1: norm of a recession every three or five years in
Speaker 1: terms of the size of the economic cycle. That's a
Speaker 1: great question. UM. I think that the answer to this
Speaker 1: is the Power himself has answered this, which is that
Speaker 1: price stability and maximum employment go hand in hand together.
Speaker 1: And the reason why in the last twenty five years
Speaker 1: we have seen long expansion year cycles is because of
Speaker 1: priced ability. So oh, currently inflation is so high that
Speaker 1: it's very hard to have a long expansion cycle because
Speaker 1: the FAID itself becomes a risk with the you know,
Speaker 1: deep but great Hicks. So to your question, I think, um,
Speaker 1: it's more more challenging than ever. But now Annah Long,
Speaker 1: chief US economists over here at Bloomberg Economics. Always a pleasure.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller. Put on false Sweeney I'm on Twitter
Speaker 1: at pt Sweeney before the podcast. You can always catch
Speaker 1: us worldwide at Bloomberg Radio