WEBVTT - Surveillance: US CPI with Porcelli 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.560 the Bloomberg Terminal, and the Bloomberg Business App. Joining us 0:00:30.640 --> 0:00:33.919 right now is Thomas Purcelli, Chief US economist at PGUM 0:00:34.560 --> 0:00:37.839 Fixed Income. He's definitive with work on the open market 0:00:37.880 --> 0:00:41.720 desk at the Fed and also truly great work on 0:00:41.880 --> 0:00:47.080 wage dynamics in America. Congratulations on a new shingle across 0:00:47.120 --> 0:00:47.640 the Hudson. 0:00:47.840 --> 0:00:48.159 Thank you. 0:00:48.840 --> 0:00:50.320 As simple as I can. I want to go to 0:00:50.320 --> 0:00:52.960 your wheelhouse right away. You're talking to Greg Peters, which 0:00:53.000 --> 0:00:56.000 is really difficult. You've got to prepare medica. 0:00:56.120 --> 0:00:58.680 He's the best, loving the pieces. 0:00:59.000 --> 0:01:01.160 You're talking to Greg here, and he's going to turn 0:01:01.200 --> 0:01:02.760 to you just like I am, and say, okay, but 0:01:02.800 --> 0:01:04.920 what about wage dynamics. That's what you on the high 0:01:04.920 --> 0:01:08.600 ground on. How are wages in America into twenty twenty four? 0:01:08.880 --> 0:01:13.960 Yeah, look, I think here's here's the problem for the 0:01:14.440 --> 0:01:17.399 backdrop with regard to wages, which look in real terms, 0:01:17.440 --> 0:01:20.319 I think we'll appreciate or sort of you know, performing decently. 0:01:21.200 --> 0:01:25.000 That The challenge though, is if you have real revenue 0:01:25.000 --> 0:01:30.000 that's moving sideways, right which it is, and you have 0:01:30.400 --> 0:01:33.960 which obviously is a function of the consumer that is 0:01:33.959 --> 0:01:37.000 sort of sort of slowing down to some extent, how 0:01:37.040 --> 0:01:39.679 do companies respond to that? How do companies respond to 0:01:39.760 --> 0:01:44.360 real revenue moving sideways, wage pressures firming up a bit 0:01:44.440 --> 0:01:47.520 in real terms. I think that to me, that's a 0:01:47.600 --> 0:01:52.440 perfect recipe for companies to go after labor, particularly if 0:01:52.440 --> 0:01:54.400 it means you're going to get a margin compression, which 0:01:54.440 --> 0:01:56.000 is something that you know, we've been talking about for 0:01:56.040 --> 0:01:57.360 a while and I think Lisa, you and I talked 0:01:57.400 --> 0:01:59.720 about that last time I was on That to me 0:01:59.800 --> 0:02:02.800 is challenge as it relates to sort of the labor 0:02:02.880 --> 0:02:04.360 dynamic in the United States to. 0:02:04.280 --> 0:02:06.800 Translate this, yeah, they're going to be layoffs. That's basically 0:02:06.840 --> 0:02:08.880 what you're seeing is that if you see this incredible 0:02:08.919 --> 0:02:11.960 margin compression, if you see costs going up and you 0:02:12.000 --> 0:02:15.160 see consumers pushing back on prices, the next step is 0:02:15.520 --> 0:02:18.160 people are going to lose their jobs. How much pushback 0:02:18.320 --> 0:02:21.000 is there actually to pricing if we're still seeing robust 0:02:21.080 --> 0:02:23.720 service as side inflation as this report just suggested. 0:02:23.880 --> 0:02:26.480 Yeah so, and what we know is that wage pressures 0:02:27.000 --> 0:02:30.000 again remaining firm in real terms, but it's coming in 0:02:30.040 --> 0:02:33.359 the context of inflationary pressure that's now slowing down. I mean, 0:02:33.760 --> 0:02:35.920 this was just two tenths that we got I get it, 0:02:36.639 --> 0:02:41.360 you know, firmer than expectations, but that still doesn't change 0:02:41.400 --> 0:02:43.600 the trend. The trend of inflation is actually moving slower. 0:02:44.080 --> 0:02:46.680 So that means that the pass through is becoming much 0:02:46.720 --> 0:02:47.920 more difficult for companies. 0:02:48.160 --> 0:02:48.840 Well, but this is. 0:02:48.840 --> 0:02:50.880 We're seeing this. You know, we saw this with American 0:02:50.919 --> 0:02:53.320 Airlines and Spirit earlier this morning. So the pass through 0:02:53.440 --> 0:02:54.480 is getting more difficult. 0:02:54.800 --> 0:02:56.960 And sorry, no no, I was just going to say, Lisa, 0:02:57.160 --> 0:03:00.160 I think it's such an important idea. Not only do 0:03:00.160 --> 0:03:02.760 you have that idea this dynamic where the pastor is 0:03:02.760 --> 0:03:05.400 becoming much much more complicated, but you know, just just 0:03:05.400 --> 0:03:07.120 look at what some of the retailers are have been 0:03:07.160 --> 0:03:10.520 talking about. I mean, the consumers is now trading down, right, 0:03:10.520 --> 0:03:12.400 I mean, just in the context of these wage pressure, 0:03:12.600 --> 0:03:14.640 these inflationary pressures that are out there. I think it's 0:03:14.639 --> 0:03:15.560 such an important idea. 0:03:15.680 --> 0:03:17.280 The problem with it is, and this is what I'm 0:03:17.280 --> 0:03:18.919 struggling with, and I think a lot of other people 0:03:18.919 --> 0:03:21.280 are as well. We were saying this six months ago. 0:03:21.560 --> 0:03:23.560 We were saying that consumers were going to push back 0:03:23.800 --> 0:03:26.520 and that savings were going to be beaten down. And suddenly, 0:03:26.760 --> 0:03:29.160 you know, we were going to see, you know, a recession. 0:03:29.360 --> 0:03:31.920 It didn't happen, and the data totally keep surprising to 0:03:31.919 --> 0:03:34.160 the upside with this yet another surprise, the upside and 0:03:34.240 --> 0:03:36.080 core how can you explain that? 0:03:36.200 --> 0:03:37.800 Yes, so I think there's a really easy way to 0:03:37.840 --> 0:03:40.240 explain it. So, in fact, there's a couple of ways 0:03:40.240 --> 0:03:43.200 to explain it. So one, the idea of excess saving 0:03:43.280 --> 0:03:46.360 is real, right, I mean, the consumers still working that down. 0:03:46.400 --> 0:03:47.160 So let's just be clear. 0:03:47.200 --> 0:03:51.320 The consumer has had a massive pool with which to 0:03:51.520 --> 0:03:52.480 sort of dive into. 0:03:52.880 --> 0:03:56.000 Excess saving was one of those ideas. The other was credit. 0:03:56.200 --> 0:03:58.520 I mean, credit usage has been you know, sort of 0:03:58.520 --> 0:04:01.240 off the charts. I mean you're looking at revolving debt 0:04:01.280 --> 0:04:05.200 that's now running out a trillion dollars, and so the 0:04:05.240 --> 0:04:07.440 consumer has been able to sort of perpetuate the sort 0:04:07.440 --> 0:04:10.800 of the consumer backdrop as a result of these two ideas. 0:04:11.080 --> 0:04:13.440 But just to be clear that now is sort of 0:04:13.520 --> 0:04:16.480 drying up a little bit, right. Excess saving continues to fade. 0:04:16.520 --> 0:04:19.840 It's not gone, it continues to fade. Banks are now 0:04:19.839 --> 0:04:22.320 actually getting pretty stingy as it relates to how much 0:04:22.360 --> 0:04:24.800 credit they're willing to sort of lend out. And we 0:04:24.800 --> 0:04:32.360 could see that in obviously bank's willingness to make these 0:04:32.440 --> 0:04:35.120 kind of loans. And so I think the whole that 0:04:35.200 --> 0:04:37.200 this this, this this backdrop. 0:04:36.800 --> 0:04:38.680 Is drying up, right. The ammunition is drying up for 0:04:38.720 --> 0:04:39.760 the consumer to some extent. 0:04:39.880 --> 0:04:42.880 What I think is so important here is, with Robert 0:04:42.880 --> 0:04:45.080 tipp coming on in the next hour, John, you've got 0:04:45.120 --> 0:04:47.479 to turn to a bunch of bond animals with the 0:04:47.640 --> 0:04:53.640 ambiguities between your economics in their portfolio management. Can you 0:04:53.760 --> 0:04:59.640 assume a disinflationary tendency means price up, yield down in 0:04:59.680 --> 0:05:01.679 bond portfolios? Is that just a given? 0:05:02.000 --> 0:05:02.200 Yeah? 0:05:02.279 --> 0:05:05.160 So I think this is a really important idea. One 0:05:05.200 --> 0:05:07.359 of the things that we've been talking about at PGM 0:05:07.480 --> 0:05:11.200 is this idea that rates can stay high. Rate rates 0:05:11.200 --> 0:05:14.360 can stay pretty elevated. And I think that you can 0:05:14.440 --> 0:05:16.600 have rates remain pretty elevated. I mean when I think 0:05:16.640 --> 0:05:18.880 about sort of the fed's reaction function toll of this, 0:05:20.160 --> 0:05:22.120 you know, and again I get it on CPI DA, 0:05:22.160 --> 0:05:25.640 we're talking about inflation. But the thing that I keep 0:05:25.640 --> 0:05:27.520 on coming back to, and I'm trying to bring it 0:05:27.560 --> 0:05:30.039 back to this today here now is the labor backdrop. 0:05:30.080 --> 0:05:32.360 Because I think when push comes to shove, I think 0:05:32.360 --> 0:05:35.000 the Fed's can be very responsive to the labor backdrop. 0:05:35.080 --> 0:05:37.279 So I can easily make the case for the FED 0:05:37.320 --> 0:05:39.320 to engage in an easing cycle. Now, I think when 0:05:39.360 --> 0:05:42.279 people say easing cycle, I think they immediately think of, Hey, 0:05:42.320 --> 0:05:44.640 this big aggressive easing cycle. It's not going to be that. 0:05:44.880 --> 0:05:46.840 I think it's a dynamic where the FED cuts back. 0:05:46.920 --> 0:05:50.920 Their easiest path within a symmetry is to go longer. Yes, 0:05:51.000 --> 0:05:52.480 stay elevated and go longer. 0:05:52.560 --> 0:05:56.000 I agree, And so to me, that's sort of the 0:05:56.000 --> 0:05:58.560 big challenge here for the FED. It's I think it 0:05:58.600 --> 0:06:00.640 doesn't have to be a big aggressive cycle. If it's 0:06:00.640 --> 0:06:02.359 not going to be a big aggressive slowing and economic 0:06:02.640 --> 0:06:03.279 twenty five or. 0:06:03.279 --> 0:06:05.719 Fifty beefs and just sit on it through twenty four. 0:06:05.760 --> 0:06:08.320 I think that's exactly right. So Our call has been 0:06:08.320 --> 0:06:10.320 you can easily see a dynamic where the FED cuts 0:06:10.560 --> 0:06:12.960 you'll call it, fifty to seventy five basis points over 0:06:13.000 --> 0:06:16.040 the coming year. And I think that's how you sort 0:06:16.080 --> 0:06:19.760 of get to this dynamic where rates still remain pretty elevated, 0:06:19.760 --> 0:06:20.120 which is. 0:06:20.120 --> 0:06:24.000 The reason why I wonder if boldilocks and soft landing 0:06:24.120 --> 0:06:26.240 is the best case scenario for risk assets or if 0:06:26.240 --> 0:06:29.279 it's actually the worst case scenario for risk assets over 0:06:29.279 --> 0:06:33.000 the longer term, particularly corporate credit. When you face off 0:06:33.000 --> 0:06:35.560 with this idea of refinancing, what's your view? Is that 0:06:35.600 --> 0:06:36.680 potentially problematic? 0:06:36.800 --> 0:06:38.240 So it can be right. 0:06:38.240 --> 0:06:40.880 I mean, I think the rollover risk idea will become 0:06:40.880 --> 0:06:43.560 a challenge, but that's not a challenge for necessarily right now, right. 0:06:43.560 --> 0:06:45.360 I mean, a lot of companies have done a great 0:06:45.440 --> 0:06:48.039 job of turning out their debt. One of the things 0:06:48.040 --> 0:06:54.040 that we've been talking about at PGM and delete. My boss, 0:06:54.279 --> 0:06:57.279 I think he's been absolutely fantastic about highlighting this really 0:06:57.360 --> 0:07:00.920 important structural idea that's out there, which is something I've 0:07:00.920 --> 0:07:03.120 been talking about since, you know, my prior life. 0:07:03.480 --> 0:07:04.680 I think that the pieces are in. 0:07:04.720 --> 0:07:07.680 Place for productivity to really kill it. I think that's 0:07:07.680 --> 0:07:10.080 going to take time to develop. And I think that 0:07:10.240 --> 0:07:14.320 leases is basically that that's another really important idea too 0:07:14.400 --> 0:07:15.960 uncerta into your your your question. 0:07:16.120 --> 0:07:17.840 We got to go when you go across the Hudson River, 0:07:17.920 --> 0:07:20.360 as Peters, let you use the Hinckley picnic Bode. He's 0:07:20.360 --> 0:07:23.960 got a little Hinckley thing that takes you over to Pega. 0:07:24.520 --> 0:07:25.960 I'm just happy to be around him. 0:07:26.480 --> 0:07:29.240 Okay, Tom Purcella, thank you so much. Say Robert Tip 0:07:29.240 --> 0:07:31.360 as well. He'll be here later. Mister Purcelli is with 0:07:31.480 --> 0:07:38.600 p Jim Fixed Income. We are doing the best we 0:07:38.680 --> 0:07:40.960 can on this. And when you have Mark German and 0:07:41.160 --> 0:07:44.240 Ed Ludlow leading to charge, it is best in world 0:07:44.280 --> 0:07:47.840 analysis of this. And what Bloomberg Surveillance has done is 0:07:47.920 --> 0:07:50.560 get away from the blah blah blah and actually talk 0:07:50.640 --> 0:07:53.080 about what it means for the company, what it means 0:07:53.120 --> 0:07:55.240 for the stock, and frankly, what it means for America. 0:07:55.320 --> 0:07:58.920 Mister forty joins US now senior research channelist D. A. Davison. 0:07:58.960 --> 0:08:01.920 He is a neutral on Apple. Let me cut to 0:08:01.960 --> 0:08:04.440 the chase. I thought some of it was fascinating and 0:08:04.480 --> 0:08:07.440 the rest of it was sort of but time to me, 0:08:07.520 --> 0:08:09.280 the key thing is What does it mean for the 0:08:09.320 --> 0:08:13.240 broader Apple ecosystem? I mean, I think there's when you 0:08:13.320 --> 0:08:16.840 have storage, everybody's complaining about two terabytes of storage and 0:08:17.120 --> 0:08:20.480 iCloud they pop that sucker out the six to twelve terabytes. 0:08:20.640 --> 0:08:23.920 Little things like that below the headline. What's yesterday mean 0:08:23.960 --> 0:08:26.080 for the Apple ecosystem? 0:08:26.120 --> 0:08:26.400 Sure? 0:08:26.440 --> 0:08:29.800 So, I think that what I thought was most interesting 0:08:30.520 --> 0:08:33.400 is that they're taking at facto price increase on the 0:08:33.440 --> 0:08:36.679 promax are They're not offering one hundred and twenty eight 0:08:36.720 --> 0:08:41.240 megabt megabyte model anymore, So it's one hundred dollars more to. 0:08:41.240 --> 0:08:45.440 Get an ipro Max. And then the dongle. 0:08:46.200 --> 0:08:49.240 You teased it before, But the fact we're talking about 0:08:49.240 --> 0:08:52.760 accessories not the phone is good and bad news. The 0:08:52.800 --> 0:08:56.120 good news is that it should be a creative to margins. 0:08:56.559 --> 0:08:59.280 The margins on a twenty nine dollars dongle ought to 0:08:59.280 --> 0:09:03.079 be fantastic for the ecosystem. I think that you may 0:09:03.120 --> 0:09:07.480 not see the incremental new buyer this year, but as 0:09:07.520 --> 0:09:11.600 you pointed out earlier, the wireless carriers seem to want 0:09:11.640 --> 0:09:14.760 to subsidize their five G networks, which is also good 0:09:14.800 --> 0:09:15.560 news for Apple. 0:09:15.679 --> 0:09:17.520 I got it so good and bad I got eight 0:09:17.520 --> 0:09:19.440 ways to go here, Tom and John and Lisa have 0:09:19.480 --> 0:09:24.640 more intelligent questions. They got a three nanimeter a seventeen chip. 0:09:25.160 --> 0:09:28.400 Is it enough for someone to upgrade in China? Is 0:09:28.440 --> 0:09:31.240 it enough for someone to upgrade? Sitting to my right 0:09:31.320 --> 0:09:34.280 here in New York, where he's adamant, he's not gonna 0:09:34.280 --> 0:09:38.319 fall for the fanboy baloney? Is that new chip enough 0:09:38.320 --> 0:09:39.000 to upgrade? 0:09:40.040 --> 0:09:42.520 I do not believe that it is. So when I 0:09:42.600 --> 0:09:45.200 was thinking about all the buzzwords and all the new 0:09:45.280 --> 0:09:49.280 things in the iPhone fifteen, I was chuckling at titanium 0:09:49.320 --> 0:09:51.720 and how there have been titanium golf cubs for some 0:09:51.920 --> 0:09:55.000 time now, or how they're essentially no one's pointed out 0:09:55.040 --> 0:09:58.680 that they're offering on Star. And so I'm concerned that 0:09:58.760 --> 0:10:03.360 there's a lo a lot of small incremental adjustments, but 0:10:03.440 --> 0:10:05.360 there's no one item that I think is going to 0:10:05.440 --> 0:10:07.760 get you to wait in line, you know, like we 0:10:07.880 --> 0:10:09.000 used to do for an iPhone. 0:10:09.240 --> 0:10:11.480 So, Tom, you know the bullish thesis. The bullish thesis 0:10:11.520 --> 0:10:14.800 sounds like this, there are tons of people who haven't upgraded. 0:10:15.000 --> 0:10:18.280 The iPhone fifteen is going to get them to upgrade? Now, Tom, 0:10:18.280 --> 0:10:20.760 you clearly don't buy into that. So let's go through 0:10:20.760 --> 0:10:24.760 your rating neutral one eighty price target in the pre market. 0:10:24.880 --> 0:10:27.760 Right now, we're at one seventy six. Given the multiple 0:10:27.800 --> 0:10:29.840 that this stock has and the fact that you don't 0:10:29.840 --> 0:10:32.000 believe in the bullish thesis, Tom, I've got to ask 0:10:32.080 --> 0:10:34.120 the question why this isn't a cell and why that 0:10:34.160 --> 0:10:36.000 one eighty isn't a whole lot lower. 0:10:36.880 --> 0:10:39.080 Yeah, so I do think, I mean, you still have 0:10:39.160 --> 0:10:42.400 an amazing balance sheet, so they have the potential to 0:10:42.440 --> 0:10:45.840 buy back billions of dollars of shares to support the stock. 0:10:46.280 --> 0:10:48.720 I don't think they would ever raise their dividend yield 0:10:49.120 --> 0:10:52.640 to say three percent, to attract that pure dividend investor. 0:10:53.160 --> 0:10:56.960 But the foundation is still there, and I don't think 0:10:57.000 --> 0:11:00.880 that the stock is so overheated they would warn accelerating 0:11:00.920 --> 0:11:01.679 at this point. 0:11:01.840 --> 0:11:03.720 There is this question though, if there isn't anything to 0:11:03.800 --> 0:11:07.320 really touch everybody's eye except for a twenty nine dollars dongle, 0:11:07.679 --> 0:11:11.319 there is an issue of the increasing geopolitical concerns, especially 0:11:11.360 --> 0:11:14.040 as right after this launch, China came out and so 0:11:14.160 --> 0:11:17.600 that they flagged a number of unspecified security incidents with 0:11:17.760 --> 0:11:21.000 the iPhone. How do you factor that into a price target. 0:11:22.000 --> 0:11:24.640 So the way that I factor it in is about 0:11:24.679 --> 0:11:27.800 ten percent of the revenue comes from China. They're clearly 0:11:27.840 --> 0:11:31.040 still heavily dependent on China from a supply chain standpoint. 0:11:31.440 --> 0:11:34.240 And when you think about what I'm thinking of is 0:11:34.360 --> 0:11:38.160 protectionist behavior by the Chinese government. We have protectionist behavior 0:11:38.160 --> 0:11:40.800 in the US as well when you think about banning 0:11:40.840 --> 0:11:44.520 TikTok and things of that nature. But to quantify it, 0:11:44.760 --> 0:11:47.680 ten percent of their sales are at some level of risk, 0:11:48.120 --> 0:11:49.920 and that's bad news for Apple. 0:11:50.720 --> 0:11:52.760 So if you're looking at right now a product that 0:11:52.840 --> 0:11:56.760 isn't necessarily going to encourage a real refresh kind of cycle, 0:11:56.880 --> 0:11:58.719 where is the bulk of the revenue going to come from. 0:11:58.800 --> 0:12:01.080 Is it going to increasingly come from services or can 0:12:01.120 --> 0:12:03.760 it continue to come from just the fact that at 0:12:03.760 --> 0:12:06.200 some point this is going to break and even John 0:12:06.320 --> 0:12:09.080 is going to have to upgrade, all right. 0:12:08.960 --> 0:12:13.880 So there is some element of the slowed upgrade consumer. 0:12:14.280 --> 0:12:17.320 But I think that this is why there was a 0:12:17.320 --> 0:12:21.520 lot of enthusiasm for the Vision Pro. But we still 0:12:21.559 --> 0:12:23.440 think that the Vision Pro, which looks to be on 0:12:23.480 --> 0:12:27.280 track for launch next calendar year, they're not going to 0:12:27.280 --> 0:12:31.319 achieve mass adoption with their augmented reality, virtual reality headset. 0:12:31.720 --> 0:12:34.040 So if you don't have the next new thing and 0:12:34.120 --> 0:12:36.800 you have kind of the iPhone aging on the vine, 0:12:37.480 --> 0:12:38.599 it's a challenging. 0:12:38.240 --> 0:12:39.080 Period for Apple. 0:12:39.480 --> 0:12:42.679 It's somewhat remarkable how well the stock's done again that 0:12:42.679 --> 0:12:45.000 they already tipped off to the hand that they're going 0:12:45.040 --> 0:12:46.800 to report their fourth consecutive order of. 0:12:46.720 --> 0:12:48.920 Declining revenue in the September quarter. 0:12:49.480 --> 0:12:54.080 So new products and I guess still a foundation on 0:12:54.240 --> 0:12:58.280 iPhone and buybacks might be the things that pulled up 0:12:58.280 --> 0:12:59.720 the stock on a near term basis. 0:13:00.040 --> 0:13:01.840 It's worth thirty times forward earnings. 0:13:02.679 --> 0:13:06.440 No it's not, but yeah, so it is not. 0:13:06.840 --> 0:13:11.520 The services element is what enabled them to get the 0:13:11.520 --> 0:13:16.240 premium multiple versus where they were trading before services. It's 0:13:16.360 --> 0:13:19.679 still a good story, but at some point, either the 0:13:19.720 --> 0:13:22.160 iPhone's going to have to exceed all of our expectations 0:13:22.679 --> 0:13:24.080 or the vision pro is going to have to do 0:13:24.200 --> 0:13:26.760 much better than I think for the stock to continue 0:13:26.800 --> 0:13:28.640 to go higher over the next twelve months. 0:13:28.679 --> 0:13:30.600 And Tom, let's just finish on this line that Lisa 0:13:30.640 --> 0:13:33.400 mentioned from China. I wonder what the response will be 0:13:33.440 --> 0:13:36.200 from Apple to this, because it's not something you typically 0:13:36.200 --> 0:13:39.360 hear this is from the Chinese Foreign Ministry spokeswoman. We 0:13:39.480 --> 0:13:42.920 notice that there have been many media reports about security 0:13:42.960 --> 0:13:46.360 incidents concerning Apple phones. Tom, what do you think they're 0:13:46.360 --> 0:13:46.880 alluding to? 0:13:48.240 --> 0:13:50.800 Yeah, so, I think they're alluding to the reports that 0:13:51.360 --> 0:13:55.319 government workers in China are not able to use Apple devices. 0:13:56.240 --> 0:13:57.920 I think it's interesting, I mean, trying to figure out 0:13:57.960 --> 0:14:01.760 the appropriate chess piece for our ball in the increasing 0:14:01.800 --> 0:14:03.880 tension between the US government and the Chinese government. 0:14:04.040 --> 0:14:06.880 They're clearly not upon They're not the king, they're not 0:14:06.920 --> 0:14:07.319 the queen. 0:14:07.559 --> 0:14:11.280 Maybe they're a knight, but they have tremendous way in China, 0:14:11.679 --> 0:14:13.920 I think so to their relationship with Fox Con. But 0:14:14.480 --> 0:14:16.040 I think they're getting kind of cott in the middle 0:14:16.080 --> 0:14:19.280 here and this increasing tension between the two countries. 0:14:19.080 --> 0:14:22.000 Without a doubt to forth. I thank you, Sir of D. A. Davidson. 0:14:22.000 --> 0:14:25.280 Following the release the Unfailing the Big Reveal if the 0:14:25.320 --> 0:14:26.640 iPhone fifteen. 0:14:36.560 --> 0:14:39.800 Regina Mayor is global head of Client's Markets and Petroleum 0:14:39.840 --> 0:14:43.600 and KPMG with Military service to the Nation. Regina, thank 0:14:43.600 --> 0:14:47.320 you so much for joining us today. Your research note 0:14:47.440 --> 0:14:51.680 is demand, demand Demand. Are the Saudis aware of the 0:14:51.800 --> 0:14:55.920 resiliency and demand the KPMGS. 0:14:55.200 --> 0:15:01.280 Projects absolutely so part of the supply challenge. It's against 0:15:01.280 --> 0:15:05.120 the backdrop of a stubbornly robust economy, but it is 0:15:05.120 --> 0:15:07.640 also a big supply part of the equation. Right we 0:15:07.680 --> 0:15:10.680 are anticipating supply drawdowns through the rest of the calendar 0:15:10.760 --> 0:15:14.560 year Q three, Q four, and we're in probably the 0:15:14.600 --> 0:15:18.560 tightest supply situation that we've been in ten years. Ten 0:15:18.640 --> 0:15:22.280 month through highs that you've emphasized, but what I'm looking 0:15:22.360 --> 0:15:26.920 at are some underlying indicators. US production is almost at 0:15:26.960 --> 0:15:30.040 its record high twelve point eight four million barrels per 0:15:30.080 --> 0:15:32.600 day against a record high thirteen million barrels per day, 0:15:32.920 --> 0:15:36.160 with seventeen percent of the rigs off the market. That's 0:15:36.160 --> 0:15:39.640 one hundred and twenty seven fewer rigs with the Saudi's 0:15:39.760 --> 0:15:42.720 intentionally keeping barrels off the market. Right now, we're saying 0:15:42.720 --> 0:15:46.040 there's roughly a three million barrel per day supply versus 0:15:46.040 --> 0:15:49.240 demand gap because demand continues to go up, and we 0:15:49.280 --> 0:15:52.680 think OPEC's purposely keeping about one point eight million barrels 0:15:52.720 --> 0:15:56.120 per day off the market, and there's no global relief 0:15:56.160 --> 0:15:58.840 valve in this environment. We can't rely on the spr 0:15:58.920 --> 0:16:01.520 There's no other worse where we can. We can turn 0:16:01.560 --> 0:16:04.080 on a tap and oil will flood back into the market. 0:16:04.160 --> 0:16:06.840 Given the fact the production is so high in the 0:16:06.920 --> 0:16:11.440 United States, is that an indication that, yes, inventories are 0:16:11.480 --> 0:16:13.720 the titus as you said, going back ten years. But 0:16:13.800 --> 0:16:17.000 this isn't as much about supply as it is ongoing 0:16:17.080 --> 0:16:20.360 continued demand and that people are underestimating the strength on 0:16:20.400 --> 0:16:23.360 the other side. That's also fueling some of these price increases. 0:16:24.280 --> 0:16:26.720 Yeah, so we've been talking about peak demand. Potentially it 0:16:26.760 --> 0:16:29.080 happened pre COVID. I think we definitely have put that 0:16:29.360 --> 0:16:31.720 in the rear view mirror. Right now. The EIA is 0:16:31.760 --> 0:16:35.240 saying average demand for twenty twenty three is going to 0:16:35.240 --> 0:16:37.760 be over one hundred and one million barrels per day. 0:16:37.880 --> 0:16:40.840 That's average. So last month we just came off one 0:16:40.840 --> 0:16:43.960 of the hottest summers in a lot of years, and 0:16:44.000 --> 0:16:46.800 we're anticipating that's one hundred and three million barrels per day. 0:16:46.880 --> 0:16:49.600 That's the three million barrel per day gap, and then 0:16:49.640 --> 0:16:51.600 the EI is projecting it goes up to one hundred 0:16:51.600 --> 0:16:54.120 and two million barrels per day in twenty twenty four. 0:16:54.760 --> 0:16:57.360 When is peak demand going to take place? Some are 0:16:57.360 --> 0:17:00.000 predicting it's this decade. Some are predicting its next day. 0:17:00.480 --> 0:17:03.560 Regardless of which decade, you anticipate that it's coming. We 0:17:03.760 --> 0:17:06.600 know it's coming. So if you're a major oil company 0:17:06.680 --> 0:17:09.239 or a major resource holder, you're trying to figure out 0:17:09.240 --> 0:17:12.600 when's the last marginal dollar of additional investment that I'm 0:17:12.640 --> 0:17:15.800 going to pit in to grow supply against the backdrop 0:17:15.840 --> 0:17:20.280 of ultimately that supply is going to be in excessive demand. 0:17:20.760 --> 0:17:23.719 Given that backdrop, if there is a recession or some 0:17:23.760 --> 0:17:26.680 sort of downturn of softening in the economy, could that 0:17:26.800 --> 0:17:29.760 offset the tightness in the oil market? In other words, 0:17:29.760 --> 0:17:32.960 could oil prices come down sharply in a surprise even 0:17:33.000 --> 0:17:36.320 with all of these technical backdrops, simply because you do 0:17:36.359 --> 0:17:37.680 get a weakening of the consumer. 0:17:38.760 --> 0:17:39.440 Absolutely. 0:17:39.560 --> 0:17:41.879 I think if we start to see more signs that 0:17:41.920 --> 0:17:44.640 the economy is slowing down, you will start to see 0:17:44.680 --> 0:17:48.080 oil prices come back down. We are seeing the potential 0:17:48.080 --> 0:17:51.359 for supply rebuild in twenty twenty four, So it's really 0:17:51.440 --> 0:17:53.480 just this six month period. I know there are some 0:17:53.600 --> 0:17:56.879 that'll say its triple digit for longer that's coming. I 0:17:56.880 --> 0:18:01.000 think there are bare signs in the market right now. Rankly, 0:18:01.400 --> 0:18:03.240 it's all upside very little downside. 0:18:03.240 --> 0:18:06.080 Regina, Just for final question here, with great respect for 0:18:06.160 --> 0:18:10.679 your bringing in international relations into the KPMG oil debate, 0:18:11.160 --> 0:18:16.160 does the United States of America have an energy policy? 0:18:17.160 --> 0:18:21.199 I think we have different aspects of energy policies. I 0:18:21.200 --> 0:18:23.160 think some of the things that we've just recently seen 0:18:23.200 --> 0:18:26.239 on anwar as more politics versus substance. It would have 0:18:26.240 --> 0:18:29.680 taken billions of dollars in investment to get drilling production 0:18:29.800 --> 0:18:32.960 and then moving that material to market. We would be 0:18:33.080 --> 0:18:36.399 best served to focus on where are great sources of 0:18:36.520 --> 0:18:41.280 resources Golf of Mexico, onshore and conventionals, other dry gas plays. 0:18:41.600 --> 0:18:44.520 There are lots of different factors that slowed down the 0:18:44.520 --> 0:18:49.520 ability for our industry to exploit those resources. I do 0:18:49.600 --> 0:18:53.119 think there's room for a more coherent, more effective energy 0:18:53.119 --> 0:18:53.960 policy overall. 0:18:54.040 --> 0:18:56.639 The policies love a prices tak I think that's the 0:18:56.640 --> 0:19:00.399 policy we want to crisis. That's kind of it dead on. 0:19:00.520 --> 0:19:03.240 Regina's just quickly, when does the mond destruction start to 0:19:03.320 --> 0:19:06.000 kick in? Aren't we already thinking about that in the nineties. 0:19:07.280 --> 0:19:09.840 For sure? I mean, I think if gas prices go 0:19:09.960 --> 0:19:12.879 substantially over four dollars, where right now we're at the 0:19:12.960 --> 0:19:15.680 end of summer driving season, and US gas prices are 0:19:15.720 --> 0:19:18.360 twelve cents per gallon on average higher than they were 0:19:18.520 --> 0:19:21.080 this time last year. That's probably not enough to drive 0:19:21.200 --> 0:19:23.399 demand destruction. But some of the things that you are 0:19:23.440 --> 0:19:27.040 all talking about relative to airline airfares, the pinch that 0:19:27.040 --> 0:19:30.320 people are starting to feel, relative to how confident they 0:19:30.320 --> 0:19:33.400 feel about the future, how confident they feel about their savings, pushs. 0:19:33.920 --> 0:19:36.720 I do see some of those pressures that could dampen 0:19:36.800 --> 0:19:38.200 demand as we move into the fall. 0:19:38.240 --> 0:19:41.560 In the winner, Regina met of KPMG on the old market, Regina, 0:19:41.600 --> 0:19:42.040 thank you. 0:19:46.119 --> 0:19:50.240 Joining us right now. The gentleman from Arkansas, French kill 0:19:50.560 --> 0:19:55.000 Republican French. I got like fourteen ways to go, ending 0:19:55.000 --> 0:19:59.960 with Arkansas football, but forget about that. Kevin McCartney. Kevin McCarthy, 0:20:00.160 --> 0:20:03.480 he has a football he's playing right now. I read 0:20:03.560 --> 0:20:10.080 Cass Sunstein's magisterial book Impeachment cover to cover. It seems 0:20:10.080 --> 0:20:14.840 like we're almost downgrading. Impeachment is a concept of our civics. 0:20:15.040 --> 0:20:19.720