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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Wall Street this morning. Keith Lenard of truest Rant in
Speaker 2: the following, the bull market still deserves the benefit of
Speaker 2: the doubt that we expect shoppy rangebound trading to persist
Speaker 2: given the geopolitical bankdrop. Keith joins us now for more. Keith,
Speaker 2: welcome to the program. Let's just get to that calm
Speaker 2: in this secuity market. Compared to the tention elsewhere, what's
Speaker 2: anchoring the bullish view?
Speaker 3: Yeah, well for us, Good morning to yours. It's one
Speaker 3: of those years, Jonathan, and I'm glad I didn't have
Speaker 3: the headlines ahead of time writing the outlook because as
Speaker 3: you mentioned, we've had this kind of ongoing what I
Speaker 3: call the carousel of concerns. Is one concern come or receives,
Speaker 3: another one comes up, and obviously I ran as.
Speaker 4: Front and center.
Speaker 3: I think to your question, like, why is the market
Speaker 3: somewhere stable?
Speaker 4: Is you know, think about the.
Speaker 3: Last five years, everything the market has gone through, whether
Speaker 3: it's you know, COVID, supply chain disruptions, the fastest rate
Speaker 3: increased by the FED since the eighties, the highest inflation
Speaker 3: since the seventies, and despite all that, the market is
Speaker 3: still close to all time highs. And I think the
Speaker 3: north star of this full market has been earnings. Earnings
Speaker 3: at this point are still trending higher. And I think
Speaker 3: to my overall point, I think investors are giving this
Speaker 3: full market the benefit of the doubt because we've seen
Speaker 3: so many corrections, and the wrong thing to do historically
Speaker 3: during these big events at the time was ultimate to sell.
Speaker 3: So I think that's why the market is being somewhat
Speaker 3: come I'd actually like to see a little bit more
Speaker 3: patent to set up a better buying opportunity relative to
Speaker 3: where we are right now.
Speaker 1: Steve Path the federated to Hermes yesterday came on and
Speaker 1: said that when oil prices get on average above ninety
Speaker 1: dollars a barrel, that would change his constructive view because
Speaker 1: would start to do damage to the underlying economy.
Speaker 4: Do you have a.
Speaker 1: Thesis like that where suddenly you start to get more
Speaker 1: concerned about the cycle of the economy right now?
Speaker 3: Yeah, I don't know that there's an exact number, per se,
Speaker 3: but you know, we do follow a way of the
Speaker 3: evidence approach.
Speaker 4: Part of that is on the economy.
Speaker 3: So if our economic group in general starts to shave
Speaker 3: back our forecast, that would be a concern. You know,
Speaker 3: we look at relative prices, we look at the credit markets,
Speaker 3: and I think those earning trends and earnings momentum in general,
Speaker 3: all things that we're watching closely to say, hey, should
Speaker 3: we be adjusting our overall position right now? We still
Speaker 3: maintaining a modest overweight to equities. But we also wrote
Speaker 3: a note earlier this week, you know, suggesting that this
Speaker 3: is not the time we haven't had enough of a
Speaker 3: correction relative to the risk to say this is a
Speaker 3: you know, some type of buying opportunity. And you know
Speaker 3: what's also notable is look at the indexes relative you know,
Speaker 3: as Jonathan alluded to, like the Act, we our global
Speaker 3: equities are still up about a percent, the S and
Speaker 3: P's down one percent, the US dollars up one percent.
Speaker 4: So if you didn't have the headlines, you thought you
Speaker 4: would think this.
Speaker 3: Is kind of a normal, kind of uneventful year.
Speaker 1: Right now, I'm just struck by the fact that people
Speaker 1: have been conditioned to buy the dip and they have
Speaker 1: a conditioned year after year after year, partly because there
Speaker 1: is a policy response that can be delivered. Right twenty
Speaker 1: twenty we got what we got from the FED as
Speaker 1: well as the bazooka from the federal government. Twenty twenty two,
Speaker 1: there was a sense that also there was going to
Speaker 1: be some response and there was more momentum in the economy.
Speaker 1: Is there that same policy lever this time around.
Speaker 4: Yeah, it's an open question.
Speaker 3: You know, a lot of debate right now is you know,
Speaker 3: it looks like the administration may be looking for an
Speaker 3: offern but it may not be fully up to them,
Speaker 3: because I obviously the Iranians have a lot to do
Speaker 3: with this as well. But I do think big picture
Speaker 3: that you know, there is a focus from the administration
Speaker 3: and then also China you know, there's a lot of
Speaker 3: China's imports go through the Strait as well, so you know,
Speaker 3: it may not just be US, it may be China
Speaker 3: as well. So I think ultimately there is likely some
Speaker 3: type of off ramp, and that doesn't mean that some
Speaker 3: of the volatility and intentions go away. But listen, the
Speaker 3: administration is focused we all know as the midterm elections.
Speaker 3: I do think there's going to be some things they
Speaker 3: can do, but obviously it's different than the terrorists where
Speaker 3: they can basically just step away themselves as other partners
Speaker 3: that they have to rely on.
Speaker 5: But Keith, how do you parse through what the administration
Speaker 5: is saying? Yesterday the President told Axios there's practically nothing
Speaker 5: left to target and Iran, and then last night at
Speaker 5: a speech he said, we don't want to leave early, right,
Speaker 5: So the president is opening the door for a prolonged
Speaker 5: conflict to what they before they would decide that it
Speaker 5: is mission complete.
Speaker 3: Yeah, Well, the one thing I would you be thinking about.
Speaker 3: I mean, obviously, as you look at even consumer confidence
Speaker 3: serves over time and inflation expectations, they correlate very highly
Speaker 3: with gas prices. So I just think, again, no one
Speaker 3: knows exactly how long, what the pain threshold is. But ultimately,
Speaker 3: you know, high gas prices isn't going to be helpful
Speaker 3: going into a midterm election. So I think that's going
Speaker 3: to be front end center. And I mean the open
Speaker 3: question that no one can really say is does that
Speaker 3: mean the threshold is you know, two weeks, you know,
Speaker 3: two months?
Speaker 4: It's hard to say.
Speaker 3: But I think ultimately, just like there was a focus
Speaker 3: last year about hey, if a ten year treasury starts
Speaker 3: going about four fifty four seventy five, there's really a
Speaker 3: more increased focus and even more headlines that are dropping
Speaker 3: from the administration, I.
Speaker 4: Think well likely would see that as well.
Speaker 3: Again, if oil stayed elevated at these levels and we
Speaker 3: started this continue to see some of the polling data deteriorate.
Speaker 2: Keith, help me understand this one. We've had a major
Speaker 2: move and crude by more than thirty percent so far
Speaker 2: this month alone, and of repricing further out the curve
Speaker 2: as well, and yet Keith and G Equities a runbinded
Speaker 2: a more than one percent and she stucks on the
Speaker 2: s and P five hundred have barely moved off the
Speaker 2: back of this story.
Speaker 4: What gives Yeah, Well, for one thing, that.
Speaker 3: Energy stocks had a big had a big rise going
Speaker 3: into this, So I think that's one thing. I think overall,
Speaker 3: the energy market is still relatively constructive. And there's also
Speaker 3: you know, some of the cost structure within the energy
Speaker 3: complex will also go high, So there's some offices I
Speaker 3: think all of me though, you know, the energy sector
Speaker 3: on pullbacks is actually relatively attractive after not doing anything
Speaker 3: for several years. But again cutting into this whole you know,
Speaker 3: this whole tension, we saw the energy sector being among
Speaker 3: the top sectors for the.
Speaker 4: Year, and same with gold.
Speaker 3: Gold went into this being up about forty percent, you know,
Speaker 3: year to date. So I think that's just kind of
Speaker 3: the reason why we haven't seen more of these moves
Speaker 3: in both energy and gold prices per se.
Speaker 2: Stay with US Multilemberg surveillance coming up after this. Brent
Speaker 2: creag right now ninety six, Brent briefly toping one hundred
Speaker 2: after more tank is were attanked in the Persian Gulf.
Speaker 2: The IEA the war is causing the biggest ever disruption
Speaker 2: to the market as it gives up for its largest
Speaker 2: emergency release ever cohidly out of rightst energy rights, and
Speaker 2: the key variable is the duration of the war. If
Speaker 2: it lasts two months, price it could pick at one fifteen.
Speaker 2: If it goes on for four months, they could reach
Speaker 2: one thirty five. Koha joins us now for more. Oh, hey,
Speaker 2: we almost hit once Wednesday on Sunday evening a rope
Speaker 2: pad self.
Speaker 4: Now, I think so.
Speaker 6: I think it really depends on the on the duration,
Speaker 6: and at least I correctly mentioned the idea of sporting vessels.
Speaker 6: I think right now we don't see any progress there.
Speaker 6: So at the end of the day, this really comes
Speaker 6: down to mass. The straight over moves around ten million
Speaker 6: barrels per day that we think are going to be
Speaker 6: closed because of the of the of the.
Speaker 4: Of the situation.
Speaker 6: Sbr's four hundred million barrels that is not going to
Speaker 6: upset any any upside press pressure that we're seeing right now.
Speaker 4: And interestingly, when.
Speaker 6: The announcement of the four hundred million barrels was done,
Speaker 6: prices barely reacted because I think that the market already
Speaker 6: assumed that something going to happen. But last time that
Speaker 6: we saw spr's being released was in March twenty twenty
Speaker 6: two in the middle of the Russia Ukraine War. And
Speaker 6: back then when the announcement was made. Prices failed by
Speaker 6: five dollars per viral right now they didn't. And this
Speaker 6: really shows how important, how critical the situation is at
Speaker 6: the moment.
Speaker 2: Oh, hey, we've seying production bank cup, You've seeing certain
Speaker 2: shot sains taking place in certain places. Restarting from there
Speaker 2: isn't necessarily painless, And I wonder from your perspective, what
Speaker 2: kind of damage we're already doing to supply chains.
Speaker 6: That's the key supply chain. I mean, you really hit
Speaker 6: the supply chain. And more importantly, from the geology point
Speaker 6: of view, the moment that you shut in production, you
Speaker 6: are changing the pressure of the reservoir and that could
Speaker 6: potentially damage your reservoir forever. So we think that coming
Speaker 6: back to to you know, normal production states, state production
Speaker 6: is not a matter of days, is essentially a matter
Speaker 6: of weeks, if not months.
Speaker 4: So yes, the straight Orf almost could be reopened tomorrow.
Speaker 6: It will take a few weeks to clear up all
Speaker 6: the logistic backlock. But then you also have the problem
Speaker 6: of rumping up production again. In some countries, especially Iraq,
Speaker 6: might have severe problems doing that.
Speaker 4: In response to higher.
Speaker 1: Oil prices, You've seen a lot of flights that have
Speaker 1: neither canceled, the prices of the tickets go up substantially.
Speaker 1: You've seen mandates to use either car pooling or bike
Speaker 1: to work in certain places, particularly in Southeast Asia. How
Speaker 1: much demand destruction have you already started to see a merge?
Speaker 4: Excellent point.
Speaker 6: I think that the man destruction is one of the
Speaker 6: important leavers that how the market is going to react.
Speaker 6: We've seen during March to start the conflict, around one
Speaker 6: point four million barrels per day of the man destruction.
Speaker 4: That is quite quite significant.
Speaker 6: One point four million barrels per day initially aviation and
Speaker 6: now gradually that impact is going to be translated into
Speaker 6: transport fuels and heating oil. And if the conflict lasts
Speaker 6: for longer, then we are probably going to see a
Speaker 6: refueling of inflation, which could change the attitude of central
Speaker 6: banks around the world. To give you a data point,
Speaker 6: before the war, we thought that oil demand was going
Speaker 6: to grow by one million barrels per day. Even the
Speaker 6: war extends for around four months, let's say oil demand
Speaker 6: growth is cut down to just four hundred thousand barrels
Speaker 6: per day.
Speaker 4: So that's really showing you.
Speaker 6: How important the demand destruction could be in the coming
Speaker 6: days and weeks.
Speaker 1: One of the other leavers Orge is more production from
Speaker 1: other areas that aren't as affected, like Russia. Do you
Speaker 1: have a sense of how much more Russia is earning
Speaker 1: as a result of higher energy prices, in the fact
Speaker 1: that it's actually increasing production to help meet the needs
Speaker 1: of its allies like China.
Speaker 6: Sure, we've seen the waivers that India received to continue
Speaker 6: inputting Russian could. Before the sanctions, Russia was exported around
Speaker 6: one point six million barrels per day to India. Then
Speaker 6: last numbers before the war was around eight hundred thousand
Speaker 6: barrels per day, so quite a significant decrease, and.
Speaker 4: With the waivers, think that there's a little bit of.
Speaker 6: An upside potential around one point two medium barrels per day.
Speaker 6: But importantly, there's a lot of Russian oil right now
Speaker 6: in offshore storage. So the fact that India is going
Speaker 6: to be able to increase its purchases of Russian could
Speaker 6: does not directly mean that Russia could start bumping up more.
Speaker 6: I think what it means is that the offshore storage
Speaker 6: will be gradually clear up and going forward, we think
Speaker 6: that the upside potential for Russia is actually quite limited.
Speaker 6: No more than two hundred three hundred thousand barrals per day.
Speaker 6: Apart from that, you don't really have much reaction in
Speaker 6: the very short term. Yes, shale can react, but that
Speaker 6: is something towards the end of the year and again
Speaker 6: very limited.
Speaker 4: I don't think more than three hundred thousand barrels per day.
Speaker 5: There was a report even just this morning about Indian
Speaker 5: oil purposes from Russia increase by nearly forty five percent
Speaker 5: in March. So basically, does Russia just get back their
Speaker 5: entire export capacity that they had in India before the
Speaker 5: United States started putting pressure on your.
Speaker 6: DELI probably yes. Now the big question there is what
Speaker 6: happens when the war ends. Will those waivers expire at
Speaker 6: among those waivers are supposed to expire at the end
Speaker 6: of April. Now, when the war ends, will those sanctions
Speaker 6: be put back into place or not? And my hunch
Speaker 6: here is that once you lift the waivers, once you
Speaker 6: lift the sanctions, it is pretty difficult to go back
Speaker 6: and implement in them again.
Speaker 5: I remember when the Red Sea was shot basically for months,
Speaker 5: and tankers and cargo ships didn't want to go through
Speaker 5: it because it was going on with the who thies
Speaker 5: even if the United States Jorge is able to reopen
Speaker 5: the Strait of Hormuz, when we'll go back to quote
Speaker 5: unquote normal.
Speaker 6: That's the key variable here. I don't think that, first
Speaker 6: of all, the scenario of the US is coating vessels.
Speaker 6: We don't see appetite from shipping companies to take that
Speaker 6: option at all right now. The mechanism is still not
Speaker 6: in place, and we don't think that this.
Speaker 4: Is likely to happen anytime soon.
Speaker 6: So to me, the only way forward for this street
Speaker 6: door foremost to be reopened east through two channels, regime
Speaker 6: chinch which at the moment doesn't seem very visible, and
Speaker 6: the other one needs to through US fire.
Speaker 2: Stay with US. More Bloomberg surveillance coming up after this.
Speaker 2: So here's the lass this morning. Crude climbing even as
Speaker 2: President Trump vows the lower prices with a massive release
Speaker 2: from the US Strategic Petroleum Reserve. Lebby cancel a PIMCO
Speaker 2: with this to say, the longer this conflict plays out,
Speaker 2: the more ugly the political environment may become. Lebby John's
Speaker 2: surround the table, let me good morning, it's going to
Speaker 2: see you. What do you make of the policy response
Speaker 2: so far? Yeah, so I think.
Speaker 7: I mean, the expectation was that there would be a
Speaker 7: dramatic release from the strategy petroleum reserve, and of course
Speaker 7: that's what we have seen. I do think that, as
Speaker 7: your previous guests have pointed out, that is only so effective.
Speaker 7: In terms of other tools, the president is pretty limited.
Speaker 7: There are obviously Russian sanctions that he can tweak with
Speaker 7: a little bit of that last week export controls that's
Speaker 7: really an extreme, some modifications or exemptions to the Jones Act.
Speaker 7: But outside of this is sort of all nibbling around
Speaker 7: the edges in terms of really addressing the what it
Speaker 7: looks like maybe one hundred dollars oil and of course
Speaker 7: then the price of gas, which is really the issue politically, domestically.
Speaker 7: And this is exactly the opposite of what Republicans plan
Speaker 7: was for twenty twenty six. It was going to be
Speaker 7: all about affordability. It was going to be pushing their agenda,
Speaker 7: even if maybe they weren't able to get things done,
Speaker 7: they were going to be at least rhetorically talking about it.
Speaker 7: And now that's been completely kind of undermined by this.
Speaker 5: We came into the new year with the White House
Speaker 5: squarely focused on affordability. How do they change their message
Speaker 5: now going into the summer and going to the midterms
Speaker 5: where it's clear the House likely is going to flip.
Speaker 5: But I'm talking to people who think that there is
Speaker 5: a chance Republicans lose the Senate.
Speaker 7: Yeah, So, I mean again, I think this is sort
Speaker 7: of their their sort of best laid plans here, have
Speaker 7: you know, gone a bit of rye. I mean, I
Speaker 7: think what the hope is is that this is going
Speaker 7: to be able to be finished right going into the
Speaker 7: summer months now. Of course, I mean it's it sounds
Speaker 7: sort of flippid, but you know, wars or conflicts are
Speaker 7: easy to start, much much harder to finish, particularly given
Speaker 7: the complexity of this of this region. So you know
Speaker 7: that intention, of course, may not be realized. I do
Speaker 7: think though, just you know, again, you saw a little
Speaker 7: bit of this yesterday with President Trump trying to get
Speaker 7: back onto that sort of affordability you know mantle. But again,
Speaker 7: I mean people you know, voters are are or not
Speaker 7: I'm not stupid, right, they see what's happening. The price
Speaker 7: of the p I just can't reinforce this enough because
Speaker 7: if you go back to spring of twenty twenty two,
Speaker 7: and you had, you know, almost five dollars oil June
Speaker 7: of twenty twenty two. The president's approval reading President Biden
Speaker 7: at that point, I mean, it took a huge hit.
Speaker 7: And they're basically inversely correlated. If you look at the
Speaker 7: graph of a presidential approval rating versus the price of gas,
Speaker 7: these things, you know, gas and groceries. People really care
Speaker 7: about these kitchen table issues, and so you know, people
Speaker 7: may not be paying attention to exactly what's happening from
Speaker 7: a foreign policy perspective and in terms of some maybe
Speaker 7: the wins that the US may ultimately achieve, but they
Speaker 7: really do care about the price of the pump. And
Speaker 7: this is going to be a big, a big headwind
Speaker 7: going into the.
Speaker 5: And Biden was then forced to abandon another foreign policy priority,
Speaker 5: which was to make Saudi Arabia or Muhammed ben Salmon
Speaker 5: a Priya, and he actually went to Jetta. When it
Speaker 5: comes to potentially what the US is going to have
Speaker 5: to or the Ministration is going to have to have
Speaker 5: Congress for is their appetite for more or defense spending
Speaker 5: going to the maternal This.
Speaker 7: Is going to be a very difficult vote, I think,
Speaker 7: I mean that what it looks like is that the
Speaker 7: White House is preparing what's called the supplemental package. You know,
Speaker 7: could be fifty billion dollars, could be more. Honestly, just
Speaker 7: given sort of the pace of spending and the extent
Speaker 7: of the conflict, they will probably you know, as Anne Marinos,
Speaker 7: they usually like to add sweeteners in order to get
Speaker 7: that sixty votes.
Speaker 3: That's what they need.
Speaker 7: In the Senate, Republicans only have fifty three votes right now,
Speaker 7: so you kind of by definition you need eight Democrats
Speaker 7: because Paul will probably vote against it. It will be a
Speaker 7: very difficult vote, and it just means that more deficit spending,
Speaker 7: right it means that we could see a supplemental and
Speaker 7: sort of the one hundred billion dollar range, you know, potentially.
Speaker 7: So I think it's going to be a very very
Speaker 7: tricky vote, you know. I think going back though to
Speaker 7: your excellent point though about the Senate, and this is
Speaker 7: something we've been looking at. Two big indicators going into
Speaker 7: the midterm elections that sort of have correlated with previous
Speaker 7: election outcomes. One is just called the generic ballot, sort
Speaker 7: of the general view of one party over another, and
Speaker 7: the other's an enthusiasm gap. How enthusiastic are one set
Speaker 7: of voters over another, and you know, the generic ballot,
Speaker 7: it's sort of plus five for Democrats. That's sort of
Speaker 7: like pointy to a fine night. Probably the House flipping,
Speaker 7: but Republicans keeping the Senate. The enthusiasm gap, however, that
Speaker 7: is suggesting a wave of election, and so that is
Speaker 7: just those are just two variables to sort of look
Speaker 7: at as we go into the midterm election. But to
Speaker 7: your point, I think that the conventional wisdom Republicans would
Speaker 7: keep the Senate because of that challenging map. For Democrats
Speaker 7: that could be thrown out the window again the longer
Speaker 7: this persists.
Speaker 1: The Iron War has definitely taken a lot of the
Speaker 1: energy of everyone's agendas recently, but the government's still impartial shutdown,
Speaker 1: and if you want to travel, not only is it
Speaker 1: going to cost you more because of higher oil prices,
Speaker 1: but also the lines are going to take you potentially
Speaker 1: substantially longer because TSA agents are not showing up.
Speaker 4: What are they going to get reopened?
Speaker 7: Yeah, I mean, this is I think fault on both sides, honestly,
Speaker 7: and Republicans and Democrats you can probably say that about
Speaker 7: a lot on Washington.
Speaker 4: These days, you.
Speaker 7: Know, and again, the people's view of Congress just in general,
Speaker 7: it's like at you know, all time lows, and this
Speaker 7: is just going to make them more angry, right, I
Speaker 7: mean this again, and this is just if you the
Speaker 7: way to sort of disenfranchise voters is to like make
Speaker 7: things that used to be more convenient less convenient. So again,
Speaker 7: price of the price of gas, now if you can afford,
Speaker 7: you know, an airplane ticket, which is obviously going to
Speaker 7: be higher now, making you in a way in line.
Speaker 7: So you know, I think we all hope that there
Speaker 7: is some resolution, but it does feel a little bit
Speaker 7: intractable because of what Democrats want on the ice.
Speaker 3: Now.
Speaker 7: I think that politically speaking, if you look at sort
Speaker 7: of the breakdown of President Trump's approval readings, one issue
Speaker 7: where he did consistently pull above water was on immigration,
Speaker 7: and that has changed over the last three months. And
Speaker 7: you were already seeing this this pivot away from some
Speaker 7: of this more the stronger rhetoric about deportations to kind
Speaker 7: of a softer Jetlar immigration approach, and so you could
Speaker 7: actually I think you could sort of see the White
Speaker 7: House trying to kind of come to a deal on
Speaker 7: this on immigration to sort of maybe pivot some of
Speaker 7: that that more draconian.
Speaker 4: Right I turn around is crazy there.
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