WEBVTT - Surveillance: Oil Prices Boost Consumer Spending, Swonk Says 0:00:02.600 --> 0:00:13.040 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.240 Bloomberg dot Com, and of course on the Bloomberg Why 0:00:27.240 --> 0:00:29.639 don't you bring in Stephen Whiting, he of the great 0:00:29.680 --> 0:00:34.360 linkage of economics into the decisions to invest, joining us 0:00:34.360 --> 0:00:37.440 from City Group, the global chief investment strategist. Good morning 0:00:37.479 --> 0:00:40.320 to stay. Great to have me with what a rapid 0:00:40.360 --> 0:00:43.680 move we've had, incruded, a huge move from north to 0:00:43.760 --> 0:00:46.559 seventy five dollars to fifty two in a matter of weeks, 0:00:46.840 --> 0:00:49.360 not months. Steve, Tom and I was saying that when 0:00:49.360 --> 0:00:52.880 things move this quick, other things break. What breaks, No, 0:00:53.040 --> 0:00:55.600 I think you can see that's indeed the fact that 0:00:55.800 --> 0:01:01.720 cross market volatility, there's an impact here asset classes. Correlation 0:01:01.920 --> 0:01:06.400 between volatile moves, you know, tends to be a bit contagious. UM, 0:01:06.520 --> 0:01:09.240 you can see it with a bit of credit. As 0:01:09.240 --> 0:01:12.480 you mentioned earlier, Um, the high yield sector in the 0:01:12.600 --> 0:01:16.880 United States is fi UM energy related. At this point, 0:01:16.920 --> 0:01:18.960 that's still you know, a much higher share than in 0:01:19.000 --> 0:01:22.360 the equity market. But broadly speaking, when you take a 0:01:22.360 --> 0:01:25.280 look at um rising credit spreads, it's going to have 0:01:25.440 --> 0:01:28.039 some impact on how much of a hurdle you think 0:01:28.080 --> 0:01:30.720 about the great hurdle will need to be in terms 0:01:30.720 --> 0:01:33.520 of equities. UM. So there's just a lot of this 0:01:33.640 --> 0:01:37.440 kind of rapid movement again by itself creates a bit 0:01:37.480 --> 0:01:40.600 of concern in markets. UM. Ultimately, you know the question, 0:01:40.600 --> 0:01:42.800 as you just said earlier, is any of its fundamental? 0:01:42.840 --> 0:01:44.920 I think a good deal of it is is politics 0:01:44.920 --> 0:01:48.440 and policy. Uh. But when you move away from all 0:01:48.480 --> 0:01:50.720 of that, you'll settle down eventually. So how do you 0:01:50.800 --> 0:01:53.600 position for two thousand nineteen? I mean, take a blended 0:01:53.640 --> 0:01:56.200 city group of proach, you get to bias leftan equities 0:01:56.200 --> 0:01:59.120 at more on oil, your other great cheen Catherine Man 0:01:59.120 --> 0:02:01.480 and others. I mean, how do you position and set 0:02:01.560 --> 0:02:05.560 up for two thousand? Well, for US, UM, it'll have 0:02:05.600 --> 0:02:07.840 a lot to do with I think Barbels uh and 0:02:07.920 --> 0:02:12.240 the sense that for our private bank client portfolios, you know, 0:02:12.280 --> 0:02:15.560 we still have a one percent underweight and global fixed income, 0:02:15.880 --> 0:02:19.320 but we have a very large overweight and US short 0:02:19.440 --> 0:02:25.000 term fixed income high quality benchmark to essentially the short 0:02:25.120 --> 0:02:28.200 end that is controlled by the FED, which has moved 0:02:28.280 --> 0:02:30.560 up a great deal, the flattening of the yield curve. 0:02:31.000 --> 0:02:34.880 Higher quality products, some lower quality products, but bear very much. 0:02:34.880 --> 0:02:37.800 The front end of the yield curve is a large overweight. 0:02:38.200 --> 0:02:40.840 Now there's still portfolio room when you have, you know, 0:02:40.919 --> 0:02:44.639 incredibly low yields across most of the developed world. There 0:02:44.720 --> 0:02:47.440 is some room to take some risk uh in many 0:02:47.480 --> 0:02:51.120 international equities. But we have moved up in quality. For example, 0:02:51.160 --> 0:02:54.000 we've taken down small cap US to to an underweight 0:02:54.040 --> 0:02:57.320 for the first time in this cycle, and we still 0:02:57.639 --> 0:03:00.399 think that we will have before this is all over, 0:03:00.480 --> 0:03:04.200 a recovery on growth expectations. We don't think two thousand 0:03:04.280 --> 0:03:07.280 nineteen marks a down year for the US or the 0:03:07.320 --> 0:03:09.400 rest of the world, but it's one where we're going 0:03:09.440 --> 0:03:11.600 to play it a bit more cautious. This laid into 0:03:11.600 --> 0:03:13.760 a fit tightening cycle. Well, let's pick out Germany as 0:03:13.800 --> 0:03:17.960 one country, one country that's actually posted quarterly contraction for 0:03:18.000 --> 0:03:21.200 the economy. Steve, do you see that as temporary, something 0:03:21.280 --> 0:03:23.560 is short term and something we bounced back at off 0:03:24.680 --> 0:03:27.799 I do very much. And look, I think a particular 0:03:28.080 --> 0:03:31.799 quarterly down move in one ear a zone country does 0:03:31.840 --> 0:03:35.400 not tell me that we're back into the soup again. Um. 0:03:35.400 --> 0:03:38.920 I think that there are other larger issues, uh, the death, 0:03:38.920 --> 0:03:42.000 sustainability in Italy, how Brexit will work out between the 0:03:42.000 --> 0:03:45.400 continent and uh the UK, these sorts of issues, you know, 0:03:45.440 --> 0:03:49.480 But a bit of a production weakness uh in Germany 0:03:49.520 --> 0:03:51.800 over one quarterly period is not going to sort of 0:03:51.840 --> 0:03:54.240 revise our our whole view of the region. Steve, the 0:03:54.280 --> 0:03:56.840 market smelling something in Europe and it doesn't smell good. 0:03:57.040 --> 0:04:00.560 You're a dollar you're really soft once again today. Buttons 0:04:00.920 --> 0:04:02.760 receiving a bit through much of this year. I mean 0:04:02.760 --> 0:04:04.760 the gentleman Tenia yeld is going to finish south of 0:04:04.760 --> 0:04:07.680 where it started the year. That's not a market that 0:04:07.760 --> 0:04:11.240 smells a rebound, is it. Well, it's one where the 0:04:11.320 --> 0:04:16.360 ECB again is further along to not helping where it's 0:04:16.360 --> 0:04:19.839 been a huge assist along the way. We came into 0:04:19.880 --> 0:04:23.800 the year with forecasts for years on growth, talking about boom, 0:04:23.880 --> 0:04:27.680 and it's been a terrible, terrible adjustment right uh to 0:04:27.760 --> 0:04:30.080 get us to where we are now, which is growth 0:04:30.120 --> 0:04:32.880 in the region as a whole um is right around 0:04:32.960 --> 0:04:35.760 trend and that's where I think the exaggerations comm into play. 0:04:35.800 --> 0:04:38.880 That there are particular policy concerns that you have to 0:04:38.920 --> 0:04:41.039 be worried about with the region, But that's not a 0:04:41.080 --> 0:04:43.200 reason for us to say we want to take a 0:04:43.200 --> 0:04:46.240 look at the highest quality European companies and say, well, 0:04:46.320 --> 0:04:48.919 let's throw them out. Steve, how do you respond to 0:04:49.080 --> 0:04:53.280 consensus which is a single digit consensus wrapped around some 0:04:53.440 --> 0:04:56.080 level of gloom, some level of doom? I mean, does 0:04:56.120 --> 0:04:59.560 that set us up once again for double digit returns 0:04:59.600 --> 0:05:03.880 surpri eyes in November of two thousand nineteen. Well, look, 0:05:03.920 --> 0:05:06.919 I do think that it is very interesting that the 0:05:06.960 --> 0:05:12.000 possibilities like we have seen right in early two thousand seventeen, 0:05:12.080 --> 0:05:14.000 you know, we're going to be in deep, deep trouble. 0:05:14.040 --> 0:05:16.040 The dollar is going to go through the roof, and 0:05:16.080 --> 0:05:18.960 then suddenly you find things go the other way. We 0:05:19.040 --> 0:05:22.240 have been building up a good deal of pessimism. Evaluation 0:05:23.000 --> 0:05:26.880 across world equity markets is down about fifteen percent this year. 0:05:27.080 --> 0:05:31.240 That's rising earnings and pessimism. Um. Yet, I don't want 0:05:31.279 --> 0:05:33.599 to at this point in the cycle when we're talking 0:05:33.640 --> 0:05:36.640 about you know, rate hike nine coming up, and I 0:05:36.640 --> 0:05:39.359 don't care if you know some news stops the FED 0:05:39.480 --> 0:05:41.600 from hiking as much as people think, you know, we 0:05:41.640 --> 0:05:43.320 still have to deal with that news that when we're 0:05:43.440 --> 0:05:46.320 this deep into a tightening cycle, we still want higher 0:05:46.360 --> 0:05:49.760 quality portfolios. But I think that the performance of markets again, 0:05:49.800 --> 0:05:53.320 we could be setting up very much for a contrarian rebound. Well, 0:05:53.440 --> 0:05:56.200 Steve Whiting, thank you so much for setting us up, 0:05:56.240 --> 0:05:57.760 and again we'll get a lot more into this with 0:05:57.800 --> 0:06:00.640 a view forward in two thousand nine. Team after what 0:06:00.680 --> 0:06:05.320 appears to be a single digital for Lucky two thousand eighteen, 0:06:07.320 --> 0:06:09.520 John Levy with this here very quickly here as we 0:06:09.520 --> 0:06:11.400 look at Amazon h Q two and he is the 0:06:11.440 --> 0:06:14.640 one to speak to John Leving out of Richmond and 0:06:15.200 --> 0:06:18.279 with a real nod of commercial real estate, John, I 0:06:18.360 --> 0:06:21.720 want to go over tech zone benefits or you know, 0:06:21.839 --> 0:06:26.080 just a simple taxation of these transaction a grizzled pro 0:06:26.279 --> 0:06:29.120 like you. Does that pay off for the city, Does 0:06:29.160 --> 0:06:31.680 it pay off for the company, or does it payoff 0:06:31.760 --> 0:06:35.320 for both? Well, it certainly pays off of the company, 0:06:35.640 --> 0:06:39.720 because they're getting huge benefits depending on where they're located. Interestingly, 0:06:39.800 --> 0:06:45.200 Tommy and Long Island City, they're getting paid approximately sixties 0:06:45.200 --> 0:06:49.240 some thousand dollars per job in the Crystal City or 0:06:49.240 --> 0:06:51.920 the Virginia location, it's a third of that, only twenty 0:06:51.920 --> 0:06:55.480 two thousand. And if you're in Nashville, you're virtually not 0:06:55.560 --> 0:06:59.640 paying at all. It's less than five thousand. So tremendous 0:06:59.760 --> 0:07:05.159 number of jobs coming twenty five thousand to Long Island, Virginia, 0:07:05.440 --> 0:07:09.200 in another five thousand to Nashville. Um. So it certainly 0:07:09.200 --> 0:07:13.400 pays off for for the company. UM and I think, 0:07:13.520 --> 0:07:15.960 go ahead, let's it do it a commercial real estate 0:07:16.000 --> 0:07:18.160 just in the time we have today. I want you 0:07:18.200 --> 0:07:22.280 to speak to commercial real estate developers in Brooklyn or 0:07:22.280 --> 0:07:27.400 Crystal City. Do they win? Yeah, they do, especially in 0:07:27.440 --> 0:07:31.000 Crystal City. Crystal City has been a desert. There's really 0:07:31.040 --> 0:07:34.800 been nothing going on for ten or fifteen years, and 0:07:34.880 --> 0:07:39.520 now all of a sudden that just the flurry of activity, apartments, 0:07:39.840 --> 0:07:43.680 offices people that want to be close to Amazon. Interestingly, 0:07:43.720 --> 0:07:48.160 in Long Island City, Uh, there the facility is located 0:07:48.160 --> 0:07:52.280 in what's called a qualified opportunity zone. So there are 0:07:52.280 --> 0:07:55.200 a lot of tax incentives for people that want to 0:07:55.240 --> 0:08:01.680 put money in the area and defer taxes. So so um. Interestingly, 0:08:01.960 --> 0:08:05.400 not in not in Virginia and not in Nashville. But 0:08:05.440 --> 0:08:07.800 there are a lot of federal tax benefits for people 0:08:07.840 --> 0:08:10.960 that invest in their backyard. John, My kitchen yesterday was 0:08:11.000 --> 0:08:15.480 a qualified opportunity zone. It was silarette. I witnessed that 0:08:15.560 --> 0:08:19.240 down in flame. I got some stuffing for sale. By 0:08:19.240 --> 0:08:22.800 the way, time, I too remember Durgin Park and the 0:08:22.880 --> 0:08:25.000 road beef that came off on both sides of the plate. 0:08:25.000 --> 0:08:29.000 It was so big, that's true, it was Did they 0:08:29.040 --> 0:08:33.000 swear at your mother too? I don't remember that part, 0:08:33.040 --> 0:08:36.359 but I do remember it being exactly as you described, 0:08:36.760 --> 0:08:38.680 kind of a scruffy area, to say the least at 0:08:38.720 --> 0:08:41.120 that time. How do I follow this? Do you know what? 0:08:41.240 --> 0:08:43.400 I love blind Bug Radio so much because we never 0:08:43.440 --> 0:08:47.000 have these moments on Blinmbug TV. Well we should. I 0:08:47.040 --> 0:08:50.560 think that we should do that, you know what. I 0:08:50.559 --> 0:08:52.400 remember Duck and Pop too, and I think it was 0:08:52.480 --> 0:08:55.840 France season. You know, I can't remember what it was, 0:08:55.920 --> 0:08:58.719 but you know, we get one more from John, one 0:08:58.760 --> 0:09:01.360 more from me. John, have seen the store closures, if 0:09:01.400 --> 0:09:03.800 we've seen the kitchen things from some of these retailers, 0:09:03.840 --> 0:09:07.280 because I don't think we have no. I don't think 0:09:07.280 --> 0:09:09.440 it's over at all yet, John, But but what we're 0:09:09.480 --> 0:09:12.360 transitioning to, and I think this is pretty clear, We're 0:09:12.400 --> 0:09:16.160 going from shopping that's a necessity to shopping that's an experience. 0:09:17.000 --> 0:09:19.000 And you know in the old days, you went out 0:09:19.040 --> 0:09:22.280 because you wanted, you needed to buy something. Uh. Now 0:09:22.400 --> 0:09:24.360 you don't do that at least I don't. You know, 0:09:24.400 --> 0:09:27.640 you order on Amazon, you ordered through any number of 0:09:27.840 --> 0:09:33.160 other channels. And so landlords and and retailers are having 0:09:33.200 --> 0:09:37.000 to come up with more experiences. For example, in your backyard, um, 0:09:37.320 --> 0:09:40.560 there was the Rose Mansion, which was a pop up 0:09:41.120 --> 0:09:43.960 and it allowed you to drink and talk about rose. 0:09:44.520 --> 0:09:49.840 Now you have something called candy Topia again, an interactive 0:09:50.960 --> 0:09:54.240 exhibition that talks about a variety of candies. So I 0:09:54.280 --> 0:09:58.920 think landlords are trying to be more creative. Uh, retailers 0:09:58.920 --> 0:10:01.120 are trying to be more creative. If and it's not 0:10:01.240 --> 0:10:03.720 just let's go out, it's let's go out and do 0:10:03.840 --> 0:10:06.360 something different. Let's go out to an experience. One of 0:10:06.360 --> 0:10:10.520 the big places that we've heard about is a bar 0:10:10.720 --> 0:10:14.079 where they have a hatchet throwing. I mean, who knew, 0:10:14.440 --> 0:10:16.679 but this is this is hot. People want to do 0:10:16.760 --> 0:10:20.560 something different. Are we do that at surveillance every morning, 0:10:20.679 --> 0:10:23.880 That's what we do with our three men. We have 0:10:23.920 --> 0:10:29.679 hatchet throwing no better time to speak to Diane Swanky 0:10:29.720 --> 0:10:31.000 can be on the fed it and be in the 0:10:31.000 --> 0:10:34.480 American economy, or Diana can be on the gifts that 0:10:34.640 --> 0:10:37.800 keeps on giving, which I think is lower oil prices. 0:10:37.920 --> 0:10:41.120 Is that right? It is certainly do in the holiday season. 0:10:41.200 --> 0:10:43.000 It's one of the things we think will give an 0:10:43.000 --> 0:10:46.400 extra boost to consumer spending during this holiday season, and 0:10:46.440 --> 0:10:49.520 it also is giving an extra boots to discussionary spending 0:10:49.559 --> 0:10:52.720 as well. Consumers are finally going back and buying clothing again. 0:10:52.840 --> 0:10:55.040 That's really strange. They've been living in gym clothes for 0:10:55.040 --> 0:10:57.800 a long time, but men and women are buying clothing, 0:10:57.840 --> 0:11:01.000 but also spending at restaurants, although it's weakened on a 0:11:01.040 --> 0:11:04.160 month a month basis in recent months, it's almost eight 0:11:04.160 --> 0:11:07.880 percent from a year ago at full service restaurants, double digit. 0:11:07.960 --> 0:11:10.079 We've never seen these kinds of games. Then, how does 0:11:10.120 --> 0:11:15.679 Grant Thornton process the fact where energy independent were energy dominant? 0:11:16.360 --> 0:11:20.160 It cuts differently than it did in the seventies or eighties. Folks, 0:11:20.200 --> 0:11:23.160 this with fifty one zero one on oil. I mean, 0:11:23.360 --> 0:11:26.120 there is a part of America that needs a higher 0:11:26.120 --> 0:11:29.079 oil price, right absolutely, And one of the things we've 0:11:29.120 --> 0:11:32.640 seen already is whenever oil prices softened a bit, and 0:11:32.679 --> 0:11:35.520 they softened a lot, as you've already noted, they've plummeted. 0:11:35.880 --> 0:11:39.040 That really takes away the only investment we've really seen 0:11:39.040 --> 0:11:42.160 in the US economy. We've seen very little investment in 0:11:42.240 --> 0:11:45.559 US economy except in the oil sector, in the innovations 0:11:45.559 --> 0:11:48.080 in the oil sector. The investment we've seen the oil sector, 0:11:48.320 --> 0:11:50.640 it's been one of the backbones of the U s 0:11:50.679 --> 0:11:54.320 economy in recent years. It was absent in the third quarter, 0:11:54.679 --> 0:11:56.320 and now you're going to see a lot less of 0:11:56.360 --> 0:11:58.360 it in the fourth quarter as well. And it's one 0:11:58.400 --> 0:12:01.760 of the things we saw a reset in oil investment 0:12:02.040 --> 0:12:05.320 in early as well. Twenty years ago, there was only 0:12:05.360 --> 0:12:08.800 one answer to the following question. Twenty years later, there's 0:12:08.800 --> 0:12:11.480 a much bigger debate. Is lower crude good or bad 0:12:11.559 --> 0:12:15.319 for the American economy. You're absolutely right, Jonathan, and a 0:12:15.520 --> 0:12:19.200 net um it still is good. Lower true crisis because 0:12:19.240 --> 0:12:22.080 we employ some few people in the oil industry, but 0:12:22.160 --> 0:12:24.520 it shows up in our GDP numbers and it shows 0:12:24.559 --> 0:12:27.679 up much more mixed, and the spillover effects of oil 0:12:27.720 --> 0:12:30.840 production go beyond the people who work directly in the 0:12:30.880 --> 0:12:33.960 oil industry. So it is a much more difficult thing. 0:12:34.000 --> 0:12:35.440 But at the end of the day, we're still a 0:12:35.480 --> 0:12:38.600 consumer driven economy and so it still mets us out 0:12:38.840 --> 0:12:42.040 to the benefit. But boy do they feel it in Dallas. 0:12:42.240 --> 0:12:44.760 And so your point down whether big capex spend has 0:12:44.800 --> 0:12:49.079 been has been in this industry, and this administration wants 0:12:49.160 --> 0:12:51.920 this country, this economy to get a lot more capex, 0:12:51.960 --> 0:12:54.280 a lot more investment. It's got to be this industry 0:12:54.280 --> 0:12:57.880 that drives it ran exactly, and that's one that we'd 0:12:57.880 --> 0:13:00.280 like to see it much more broad based. We haven't 0:13:00.320 --> 0:13:02.760 seen it as broad based. The other big complaint I'm 0:13:02.760 --> 0:13:06.400 getting from a lot of clients in the oil patch tariffs. 0:13:06.559 --> 0:13:09.679 The tariffs hit the steel that they import because they 0:13:09.760 --> 0:13:16.520 only have suppliers they imported mostly from Canada. A tax. Now, Diane, 0:13:16.559 --> 0:13:19.200 what is your working number for g d P. Let's 0:13:19.200 --> 0:13:23.280 go twelve months, two thousand nineteen for two thousand nineteen, 0:13:23.320 --> 0:13:25.880 about two and a quarter percent. Much depends on whether 0:13:25.960 --> 0:13:27.960 or not we get in a full blown trade war. 0:13:28.280 --> 0:13:30.480 I am worried about the next recession. As you know, 0:13:30.679 --> 0:13:34.240 timing it is really difficult to do of never forecaft 0:13:34.240 --> 0:13:36.680 a recession, and I am Now this came up over 0:13:36.880 --> 0:13:41.880 cocktails last night because Diane, I failed, it's stuffing. I'm 0:13:41.880 --> 0:13:44.480 so it's stuffing today. But we we washed it down 0:13:44.520 --> 0:13:49.040 with some cocktails and the failure of and what you 0:13:49.200 --> 0:13:52.920 got that right, thank you, Drysack. And what came up 0:13:53.720 --> 0:13:56.520 Diane was you don't see a recession coming. I mean, 0:13:56.600 --> 0:14:00.600 that's the historical study, right, you don't see it, but 0:14:00.679 --> 0:14:03.120 you can see the ingredients of a recession. And what 0:14:03.160 --> 0:14:05.120 do I worry about when I look for the ingredients 0:14:05.160 --> 0:14:07.800 of a recession The risk of a policy miss step. 0:14:07.840 --> 0:14:10.760 That's gone up a lot on a multiple fronts. One, 0:14:10.840 --> 0:14:13.839 the Fed could raise rates too rapidly or too high 0:14:13.920 --> 0:14:15.800 at some point in time. By the end of this year, 0:14:16.000 --> 0:14:18.640 we'll see in one year's time a doubling of short 0:14:18.720 --> 0:14:20.920 term interest rates by the Federal Reserve. They're still at 0:14:20.920 --> 0:14:24.080 low levels, but that's a major shift in interest expense 0:14:24.280 --> 0:14:26.720 on a lot of short term corporate debt. The debt 0:14:26.760 --> 0:14:29.760 record highs. That's going to reprice over the next year. 0:14:30.080 --> 0:14:32.480 So that's one thing we watched. Another thing is trade. 0:14:32.720 --> 0:14:35.280 You could have a major missed up on trade that 0:14:35.440 --> 0:14:39.160 not the triffs alone cause a recession, but the collateral 0:14:39.240 --> 0:14:42.280 damage to the second largest economy in the world, China, 0:14:42.760 --> 0:14:45.880 not like Japan. It's got tentacles in every other economy 0:14:45.880 --> 0:14:47.600 out there. So we got to data check. I mean, 0:14:47.640 --> 0:14:50.360 we're correlated in here. We got oil flat out, plunging 0:14:50.800 --> 0:14:53.880 ten year yield coming in finally in two solid basis points, 0:14:53.880 --> 0:14:56.040 we're gonna get a three or three handle in a moment. 0:14:56.040 --> 0:14:58.600 We're getting a little bit of Friday correlation, aren't we? Yeah, 0:14:58.600 --> 0:15:01.360 we are. And Bright Evans of Rhode ivers wild and 0:15:01.440 --> 0:15:04.000 does it make sense? And inflation expectations a hit when 0:15:04.040 --> 0:15:06.840 spot crude rolls over, when crude futures roll out of 0:15:06.840 --> 0:15:09.400 the way they have done. It is really amazing, is 0:15:09.400 --> 0:15:13.040 how correlated inflation expectations are to oil. It always has been, 0:15:13.160 --> 0:15:15.800 it always will be. What really matters is over the 0:15:15.840 --> 0:15:18.280 longer haul, what happens to core inflection, because that's what 0:15:18.400 --> 0:15:21.640 we converge to now, Dane, So thank you so much. 0:15:23.680 --> 0:15:25.400 This is great. We've got oil, and we've got a 0:15:25.440 --> 0:15:29.160 wonderful guest with us right now. Christian Mayleek is out 0:15:29.160 --> 0:15:34.000 of the hugely prestigious Imperial College Chemical engineering program, and 0:15:34.080 --> 0:15:37.600 it knows the visceral nature of the oil market like 0:15:38.000 --> 0:15:40.280 I few do. He joins us now of course with 0:15:40.400 --> 0:15:45.400 JP Morgan Kazanov in London right now, Christian, I know, 0:15:45.520 --> 0:15:47.440 I know you look at Brent crude as a global 0:15:47.480 --> 0:15:49.720 oil price. Here in New York, we're focused on the 0:15:49.800 --> 0:15:54.680 dynamics of West Texas intermediate fifty one fifty handle earlier. 0:15:55.240 --> 0:15:58.240 Is there is there a symbolism to West Texas going 0:15:58.320 --> 0:16:01.520 through fifty dollars with a forty nine for barrel print? 0:16:01.600 --> 0:16:06.040 Does that matter? Tom? A great question, very kind words. 0:16:06.800 --> 0:16:08.440 I think to sort of to say, to say from 0:16:08.560 --> 0:16:11.120 from the outstep, you know, as a house Japreen Morgan 0:16:11.160 --> 0:16:13.640 has been bearish for the best by of the eighteen months. 0:16:13.640 --> 0:16:16.920 So we've been calling for fifty to sixty barrel for 0:16:17.040 --> 0:16:19.560 some time now, and we sort of stuck to our guns. 0:16:19.560 --> 0:16:21.760 And the main reasons of answering your question, Tom is 0:16:22.160 --> 0:16:24.000 we've looked at the cost curtain a lot of depths, 0:16:24.040 --> 0:16:25.880 and every time you look at the marginal cost to 0:16:25.920 --> 0:16:29.720 produce oil is somewhere between forty and sixty dollars about Brent. 0:16:30.280 --> 0:16:32.600 In fact, every time you talk to a major or 0:16:32.640 --> 0:16:35.200 you look at the premium, they're getting more efficient to 0:16:35.240 --> 0:16:38.480 produce oil and Therefore, when you think about the risk premium, 0:16:38.640 --> 0:16:41.040 the question I think some of us were asking is 0:16:41.240 --> 0:16:43.720 should have ever been a eighty five? When? When? When? 0:16:43.920 --> 0:16:45.880 When the cost of the cost to produce oil is 0:16:45.960 --> 0:16:51.200 somewhere around fifty, your cost curve shows a Russia challenge. 0:16:51.480 --> 0:16:53.960 We've heard earlier, Penmen. I heard earlier that Mr Putin, 0:16:54.480 --> 0:16:56.880 maybe we'll meet with the Crown Prince or other worthies 0:16:56.880 --> 0:17:00.000 of G twenty, maybe even before that. How does rush 0:17:00.000 --> 0:17:04.080 to fit into the supplied calculus right now? Well, it's 0:17:04.080 --> 0:17:05.880 a good question, and when we look at what we 0:17:05.880 --> 0:17:08.200 we we did this work called the break Even Championship 0:17:08.200 --> 0:17:10.760 as a global study looking at break evens not just 0:17:10.840 --> 0:17:14.520 on the costcar but also country break even, open bake 0:17:14.560 --> 0:17:17.240 and fiscal um. And so it was almost like sort of, 0:17:17.320 --> 0:17:20.320 let's let's think about this massive costcar with everybody on it, 0:17:20.440 --> 0:17:24.040 not just the projects and Russians. Study were very interesting Russia, 0:17:24.680 --> 0:17:27.560 Russia's break even summer between forty and fifteen. In fact, 0:17:27.560 --> 0:17:29.879 what was quite controversial when we published this back in 0:17:29.960 --> 0:17:32.680 March because we said that the Saudi fiscal break even 0:17:32.720 --> 0:17:35.959 and Saudi open fiscal break even is now somewhere between 0:17:36.560 --> 0:17:40.280 fifteen seventy. So when you triangulate the Saudi fiscal break 0:17:40.320 --> 0:17:43.439 even alongside the Russia break even, what's really interesting is 0:17:43.480 --> 0:17:47.040 that you know, for Russia, at least their pain thresholds 0:17:47.040 --> 0:17:49.159 far higher. They can cope with all with with a 0:17:49.280 --> 0:17:51.680 five handle. I don't think they're loving it, but they 0:17:51.680 --> 0:17:54.560 can absolutely cope with that, which then sort of puts 0:17:54.560 --> 0:17:56.720 the ball back in Saudi's court and opec as to 0:17:56.800 --> 0:18:00.199 whether they can actually manage that kind of break even. Yes, 0:18:00.280 --> 0:18:02.440 And when we think about the epic meeting in June, 0:18:02.520 --> 0:18:04.359 I think what what we sort of people missed in 0:18:04.480 --> 0:18:06.720 terms of the production hike was that they were feelings 0:18:06.760 --> 0:18:11.120 far more comfortable with oil in the sty seventy range 0:18:11.320 --> 0:18:14.399 or in fifty sixty range because they've managed to fix 0:18:14.440 --> 0:18:17.840 their economies take those break evens down a lot more 0:18:17.880 --> 0:18:20.280 than when they cut in twenty six. Did you remember 0:18:20.280 --> 0:18:22.439 their break evens are north of ninety across the border, 0:18:23.240 --> 0:18:27.760 our investors prepared for new oil and new energy coming 0:18:27.880 --> 0:18:31.679 on market, And I'm thinking about the recent find and 0:18:31.760 --> 0:18:35.040 discovery in the Gulf of Mexico about two hundred miles 0:18:35.080 --> 0:18:38.600 south of New Orleans by Chevron that is scheduled to 0:18:38.880 --> 0:18:42.360 come online. Plus, you've had recent comments from the head 0:18:42.359 --> 0:18:45.520 of Petro Brass saying that the firm is going to 0:18:45.640 --> 0:18:51.639 focus on exploration and production. Yeah, it's absolutely right. I 0:18:51.640 --> 0:18:53.400 mean it's interesting that, you know, when when you think 0:18:53.440 --> 0:18:58.080 about the concerns around a supply crunch, I mean, one 0:18:58.119 --> 0:19:00.680 of the things that we kept our doing for why 0:19:00.680 --> 0:19:02.879 all would be capped around fifty six dollars is that 0:19:02.920 --> 0:19:06.440 it's you know, the short term mirage with limited supplies 0:19:06.440 --> 0:19:09.119 has once again be pushed out the picture. And you 0:19:09.240 --> 0:19:11.359 mean you make you know, the fact that we have 0:19:12.480 --> 0:19:15.280 big oil now sort of moving in so to speak, 0:19:15.280 --> 0:19:18.600 into shale is something which, as you point out, is 0:19:18.640 --> 0:19:22.680 going to massively accelerate production in the TERMUN the questions 0:19:22.680 --> 0:19:24.560 for how long. I mean, a lot of people are 0:19:24.600 --> 0:19:26.920 arguing for a rollover in share production at some point 0:19:26.920 --> 0:19:28.919 in the mid twenties, and I think there is a 0:19:29.000 --> 0:19:32.320 risk around that. But in the short medium term you 0:19:32.359 --> 0:19:35.280 have a scaling up of the termun and when you 0:19:35.320 --> 0:19:37.680 have the big oil or the super majors moving in, 0:19:38.200 --> 0:19:40.840 they've got the infrastructure, the balance sheet, the scale and 0:19:40.840 --> 0:19:47.800 the technology to really scale this. The outlook meaningfully higher. Yeah, 0:19:47.960 --> 0:19:51.239 is there is there sweat at Vienna December six. I mean, 0:19:51.359 --> 0:19:54.399 is it just another you know, photo opportunity for a 0:19:54.400 --> 0:19:56.960 bunch of oil ministers or can something actually get down 0:19:57.080 --> 0:20:01.080 around the tensions of this price. Yeah, no, it's absolutely right. 0:20:01.080 --> 0:20:02.600 And I think I think what the market is doing 0:20:02.680 --> 0:20:06.880 is putting OPEC feed on the fire. Um. And when 0:20:06.920 --> 0:20:09.560 we've discussed OPEC and we we we published a known 0:20:09.560 --> 0:20:11.760 a few weeks ago arguing that OPEC would kick the 0:20:11.840 --> 0:20:14.520 can down the road. And I think with this moving oil, 0:20:14.560 --> 0:20:16.520 it's sort of a bit circular. Right when all moves low, 0:20:16.600 --> 0:20:19.040 you start to think OPEC has to act. I think 0:20:19.080 --> 0:20:23.240 that the base cases that OPEC will cut We disagree. 0:20:23.480 --> 0:20:27.040 In fact, our call is that OPEC will um sign 0:20:27.040 --> 0:20:29.760 a deal that's a weak deal. Um. If there is 0:20:29.760 --> 0:20:33.000 some sort of paper restriction on production for next year, 0:20:33.359 --> 0:20:36.639 it's likely to be with several caveats. So if close 0:20:36.720 --> 0:20:39.120 expecting OPEC to do a sort of massive you turn 0:20:39.160 --> 0:20:41.480 on the summer where they did a U turn in itself, 0:20:41.960 --> 0:20:44.800 it's unlikely. I think they like the newfound mark is share, 0:20:45.080 --> 0:20:48.200 They've recognized permius here to stay. I don't think we'll 0:20:48.240 --> 0:20:50.600 quite give up. You know, it's not likely we get 0:20:50.600 --> 0:20:55.480 a sort of November fourteen repeat, but it's going to 0:20:55.520 --> 0:20:59.959 be one of the weakest deal see signed into wonderful briefing. 0:21:00.040 --> 0:21:02.359 Thank you so much, Christian Mayor. Like with JP Morgan 0:21:02.480 --> 0:21:08.520 Kazanov out of London on E M E. A Oil Now, 0:21:08.560 --> 0:21:10.880 as we had Joe Felban earlier, his colleague in crime, 0:21:10.960 --> 0:21:15.320 Dana Telsey, joins as Telsey Advisory Group Dana open question. 0:21:15.400 --> 0:21:17.720 You walk into Macy's on a day like this, what 0:21:17.880 --> 0:21:19.919 is a grizzled pro like? You look at? What do 0:21:20.000 --> 0:21:22.760 you observe or what do you study when you go 0:21:22.800 --> 0:21:25.720 into a Macy's on a Black Friday. When I go 0:21:25.760 --> 0:21:27.840 into Macy's and I was there last night for a 0:21:27.880 --> 0:21:30.720 couple of hours after they open, I'm looking at what's 0:21:30.760 --> 0:21:33.640 the traffic like, what is the rate of the promotions like? 0:21:34.000 --> 0:21:36.080 And where are the crowds? And I could tell you 0:21:36.080 --> 0:21:38.879 where the crowds were last night. It's called out in 0:21:38.920 --> 0:21:41.919 New York. It was all about boots. Those ug boots 0:21:41.920 --> 0:21:44.520