WEBVTT - Surveillance: $150 Oil With JPMorgan's Malek 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.680 and of course on the Bloomberg terminal. If you are 0:00:29.760 --> 0:00:32.000 part of Global Wall Street on the radio and television. 0:00:32.040 --> 0:00:34.440 This morning, this is not only the interview of the day, 0:00:34.680 --> 0:00:37.199 but I'm sorry, maybe it's the interview of two thousand 0:00:37.240 --> 0:00:40.960 twenty one long agoing far away. At Deutsche Bank, Adam 0:00:41.080 --> 0:00:45.120 Saminski had a team to dream of on hydro carbon's. 0:00:45.400 --> 0:00:49.360 They were red cover to cover worldwide. Christian Meylick part 0:00:49.360 --> 0:00:51.360 of that team and he is now at JP Morgan 0:00:51.720 --> 0:00:54.600 or He has a thirty two page power point migrating 0:00:54.640 --> 0:00:58.360 base case oil out to eighty with possibilities out to 0:00:58.440 --> 0:01:00.920 well over a hundred dollars of bear Girl and even 0:01:00.920 --> 0:01:04.080 out to a hundred and fifty dollars a barrel. After 0:01:04.160 --> 0:01:07.520 JP Morgan London dusk. He joins us this morning. Christian. 0:01:08.120 --> 0:01:11.360 Within all the hyper detail of your wonderful report is 0:01:11.400 --> 0:01:16.720 the idea that United States shell production will not come on. Boy, 0:01:16.800 --> 0:01:19.640 do a lot of people disagree with you. Why are 0:01:19.680 --> 0:01:25.840 you skeptical Shell will produce it? A hundred dollars of barrel? Paul, 0:01:25.840 --> 0:01:27.520 thank you for your client comments. And I think that 0:01:27.800 --> 0:01:30.000 you know shale isn't a straight jacket. That's the best 0:01:30.040 --> 0:01:32.120 way to explain it. The straight jacket is they've got 0:01:32.120 --> 0:01:34.800 to pay dividends, they've gotta paid their debt down, and 0:01:34.840 --> 0:01:37.840 they've got to decarbonize. When you layer all this on, 0:01:38.080 --> 0:01:40.800 we can talk economics four year dollars all day long, 0:01:40.840 --> 0:01:43.640 but the reality is the fiscal baggage on top of that, 0:01:43.959 --> 0:01:46.400 related in parts of transition, related in parts of what 0:01:46.480 --> 0:01:48.680 I call the black premium, which is, I'm a share 0:01:48.680 --> 0:01:50.960 little company. I've got to give Wayne more cash back 0:01:51.040 --> 0:01:53.360 now than I ever had to because my investments only 0:01:53.400 --> 0:01:55.880 only for that reason. When you put that all together, 0:01:56.200 --> 0:01:59.160 you're clearing seventy five to eight dollars at least before 0:01:59.160 --> 0:02:02.920 you're all to qualify to invest and grow your capex 0:02:03.000 --> 0:02:05.440 once again, three years ago, that was down at forty. 0:02:06.000 --> 0:02:09.520 So things have fundamentally change, particularly in the context of 0:02:09.520 --> 0:02:12.000 this energy transition. It does applied to shale, not just 0:02:12.120 --> 0:02:14.519 the majors. Let's not bury the lead here, Christian. This 0:02:14.600 --> 0:02:17.799 is now earlier this week, one fifty one fifty on Brent. 0:02:17.919 --> 0:02:20.280 Let's go there, Opec. You say, show me the barrels, 0:02:20.280 --> 0:02:23.320 walk us through. It reminds when I said thirty dollars 0:02:23.360 --> 0:02:26.880 back in and I think, ultimately what we have now 0:02:26.960 --> 0:02:31.120 here is this garage of spare capacity. I love today's headlines. 0:02:31.120 --> 0:02:32.639 Are they going to add four hundred, They're going to 0:02:32.680 --> 0:02:34.640 add two hundred and fifty, And we can debate this 0:02:34.680 --> 0:02:37.160 all day long. The question people are asking is what 0:02:37.200 --> 0:02:39.959 do they actually have over the medium term. And you know, 0:02:40.000 --> 0:02:42.440 we've been running this supercycled thesis from the spring of 0:02:42.560 --> 0:02:44.880 last year and all went negative and it was almost 0:02:44.919 --> 0:02:46.360 right in front of us. We didn't see it, which 0:02:46.400 --> 0:02:49.000 was actually, we're obsessed with under investment with the majors. 0:02:49.000 --> 0:02:52.280 What about OPEC. You've got fiscal problems, you've got reservoir issues, 0:02:52.280 --> 0:02:55.000 you've got supply chain issues. You throw that all together 0:02:55.600 --> 0:02:58.800 and our spect capacity nowalysis comes out as half what 0:02:58.960 --> 0:03:01.440 the market deems it to be around five million pounds 0:03:01.440 --> 0:03:03.440 And what does that actually mean? It means that we 0:03:03.480 --> 0:03:06.880 don't think they can actually clear two hundred up to 0:03:06.960 --> 0:03:09.600 that amount by the second half of next year. And 0:03:09.639 --> 0:03:11.959 so when you run that analysis, you get into around 0:03:11.960 --> 0:03:14.400 a hundred and fifte hundred twenty dollars. But then if 0:03:14.440 --> 0:03:17.840 you fast forward in that scenario come eighteen months, there 0:03:17.960 --> 0:03:20.120 is this kind of like sort of like the penny 0:03:20.160 --> 0:03:22.720 dropping moment in the market, you know, which is, oh 0:03:22.760 --> 0:03:25.079 my god, these guys don't have the spare capacity. And 0:03:25.120 --> 0:03:27.040 when we've gone to look and looked at forty years 0:03:27.120 --> 0:03:30.240 of history around when a spare capacity being you know, 0:03:30.320 --> 0:03:33.079 single digits as a posential of total capacity, that's when 0:03:33.080 --> 0:03:36.760 the risk premium shoots up. And that's how you get 0:03:36.800 --> 0:03:39.040 two hundred and fifty. You kind of your fundamentals are 0:03:39.080 --> 0:03:41.120 thing around a hundred and twenty, and then it's the 0:03:41.160 --> 0:03:44.320 market saying we've got no we've got no cushion here anymore. 0:03:44.480 --> 0:03:46.160 Christie and I just want to go through these numbers 0:03:46.200 --> 0:03:47.880 with you so our audience can really get their hands 0:03:47.920 --> 0:03:49.760 around them, because that's what separates you in the crowd. 0:03:49.840 --> 0:03:52.960 Right now, for OPEC spare capacity, you're at two million 0:03:53.480 --> 0:03:56.720 consensuses at four point eight that's a two point eight 0:03:56.760 --> 0:03:58.840 million spread. Kristen, can you walk me through the numbers? 0:03:58.840 --> 0:04:01.280 How you got to two and what you think everyone 0:04:01.280 --> 0:04:04.160 else is all the way up there by five? It's 0:04:04.240 --> 0:04:06.440 it's it's basically, we've gone through the west upfroom countries. 0:04:06.480 --> 0:04:08.400 We want to juicy sea countries. And what we're looking 0:04:08.440 --> 0:04:11.560 at is not the oil in the ground. We're looking 0:04:11.600 --> 0:04:15.240 at two things, how they finance the oil production effectively 0:04:15.400 --> 0:04:19.920 as what we call the spare capacity, and to where 0:04:19.920 --> 0:04:22.440 the logistics supply chain are and whether it's conducive for 0:04:22.480 --> 0:04:24.359 them to be able to do it. And when we 0:04:24.400 --> 0:04:25.800 look at this, we sort of break it into of 0:04:25.880 --> 0:04:29.040 high risk, medium risk and low risk countries. High risk 0:04:29.080 --> 0:04:32.240 countries you've got Iran, Libya and Nigeria and god, I mean, 0:04:32.279 --> 0:04:34.920 I love everyone sort of threatening around Iran. Sanctions again, 0:04:35.200 --> 0:04:37.360 remove the sanctions. Let's see what you've got in terms 0:04:37.400 --> 0:04:39.839 of actual barrels, and we think they don't actually have 0:04:39.880 --> 0:04:41.960 more than three and four and thou in addition to 0:04:41.960 --> 0:04:44.200 where they're already are at the moment. And then we 0:04:44.200 --> 0:04:46.360 move to the medium risk and believe are not rushes 0:04:46.400 --> 0:04:49.840 in that camp because they've had reservoir problems, they've had 0:04:49.880 --> 0:04:54.839 to deliver storage into their own inventories, and equally they've underinvested, 0:04:55.120 --> 0:04:57.560 and then they can't add quickly enough because it will 0:04:57.640 --> 0:05:00.240 hurt their reservoirs. And then you have a low risk 0:05:00.279 --> 0:05:03.760 countries like Saudi in the UAE, which have been investing 0:05:03.800 --> 0:05:07.279 in their specapacity over the past three years, and therefore 0:05:07.760 --> 0:05:09.560 as and when demand calls for it, they will be 0:05:09.600 --> 0:05:12.159 able to deliver. So we're actually two point eight million 0:05:12.160 --> 0:05:15.360 barrels of specapacity, the market somewhere around four and a 0:05:15.400 --> 0:05:17.720 half to five and a half, but it's a long 0:05:17.800 --> 0:05:20.520 way down and I think people ask me, when is 0:05:20.560 --> 0:05:22.400 that going to actually play out? How do we know? 0:05:22.440 --> 0:05:25.120 How can we believe this? It will simply be through 0:05:25.440 --> 0:05:28.120 month and month production ads where they just can't keep 0:05:28.240 --> 0:05:31.279 up with whatever they're targeting, be it four hundred or 0:05:31.279 --> 0:05:34.400 potentially to fifty Christian The idea of a hundred and 0:05:34.400 --> 0:05:37.680 fifty dollars a barrel oil comes from the idea that 0:05:37.760 --> 0:05:39.880 demand is going to pick up back to pre pandemic 0:05:39.960 --> 0:05:42.600 levels by March of next year. How does the armicron 0:05:42.720 --> 0:05:44.760 variant really play into this at a time when we 0:05:44.800 --> 0:05:47.359 see people canceling their travel plans and we see a 0:05:47.400 --> 0:05:52.479 lot more uncertainty in the global vacationing space. If nothing else, Yeah, 0:05:52.520 --> 0:05:54.600 you're absolutely right. I was hoping you wouldn't ask the question. 0:05:54.640 --> 0:05:57.080 But the whole thing relies. The whole thing is anchored 0:05:57.120 --> 0:05:59.760 on demand. It's almost like the you know, it's nine 0:05:59.800 --> 0:06:04.640 and nine of our thesis that demand actually continues to 0:06:04.680 --> 0:06:07.440 recover and grow. We've already adjusted in the context of 0:06:07.440 --> 0:06:10.880 a weak aviation outlook in Key One clearly that was 0:06:11.279 --> 0:06:14.320 omicron is going to be um somewhat uncertain. But we 0:06:14.440 --> 0:06:16.880 do think as a house to add on risk because 0:06:16.880 --> 0:06:20.640 we do see demand recovery. Mark Colin the also talked 0:06:20.680 --> 0:06:22.880 about that in his recent piece to Buy the Dips, 0:06:23.200 --> 0:06:24.960 and the raality is that, you know, we're sort of 0:06:25.279 --> 0:06:29.080 coining this very especially the the omega, in the sense 0:06:29.120 --> 0:06:31.680 that this is potentially what qualifies for a risk contrade, 0:06:31.760 --> 0:06:36.320 because immunity will continue to be strong, and we don't 0:06:36.320 --> 0:06:40.000 think that hospilitations will actually keep sort of end up 0:06:40.080 --> 0:06:43.039 of catching up with the cases. In other words, even 0:06:43.080 --> 0:06:47.880 if I have high cases, it won't actually fundamentally impact demand. Outlook. Now, 0:06:48.000 --> 0:06:51.240 if we do see demand potentially damaged where we're around 0:06:51.360 --> 0:06:53.680 we're around a hundred million pounds from next year, I 0:06:53.720 --> 0:06:58.680 do expect then to take take action Christian the perception 0:06:58.720 --> 0:07:02.520 in America as a Democrats, President Biden's secretary grand Home 0:07:02.960 --> 0:07:08.480 are against American oil. In our conversation with Secretary grand Home, 0:07:08.520 --> 0:07:15.480 what she emphasized is oil is one global price, is it. 0:07:15.480 --> 0:07:18.520 It is one global price um and it's set ultimately 0:07:18.560 --> 0:07:22.440 by the marginal producer. And if the marginal producer can't 0:07:22.480 --> 0:07:27.160 deliver owing to productivity or federal land restrictions or Wall Street, 0:07:27.480 --> 0:07:31.920 that marginal role moves to whoever does have the spare capacity. 0:07:32.040 --> 0:07:35.240 And at that point the question is model price do 0:07:35.320 --> 0:07:38.080 they want? And I think ultimately, when we think about 0:07:38.160 --> 0:07:41.200 e M countries, I understand the point around wanting to 0:07:41.280 --> 0:07:44.880 keep press the prices low, but that global price rob 0:07:44.960 --> 0:07:48.640 ultimately drives significant revenue for a lot of the poorer 0:07:48.680 --> 0:07:51.440 e M countries, and so there's a sort of interesting 0:07:51.760 --> 0:07:56.080 tension between the consumers um and the producers. And I 0:07:56.120 --> 0:07:59.440 think that then segues into opexibility to actually manage this 0:07:59.520 --> 0:08:02.480 balance between having to keep the west and sort of 0:08:02.680 --> 0:08:07.520 restrict inflation visit versus the i M countries that relyableheartedly 0:08:07.560 --> 0:08:09.720 on this as a revenue source. But the bottom line 0:08:09.760 --> 0:08:12.880 is the marginal cost of the marginal price setter is 0:08:12.920 --> 0:08:16.160 shifting to OPEC. Then it all comes down to how 0:08:16.200 --> 0:08:18.880 much additional barrels they have. And this is the point 0:08:18.880 --> 0:08:20.520 where it's almost like you can ask them to do 0:08:20.600 --> 0:08:23.080 whatever you want, but it really the question is can 0:08:23.120 --> 0:08:26.400 they actually do it well? Christian, just real quick here, 0:08:26.640 --> 0:08:29.800 does this give them incredible cover the omicron variant to 0:08:29.880 --> 0:08:33.400 basically not boost production for January at their meeting that 0:08:33.520 --> 0:08:36.720 ends today? It does. It gives them cover it and 0:08:36.720 --> 0:08:38.839 and it actually gives them a breather, which is that 0:08:39.120 --> 0:08:42.080 you can actually get back to your reservoirs, focused on 0:08:42.080 --> 0:08:46.400 the technicals, build your inventories and delay um and at 0:08:46.440 --> 0:08:49.160 that point when demand recovers and we don't see it 0:08:49.200 --> 0:08:52.040 being damaged, but ultimately as it continues to grow, you 0:08:52.080 --> 0:08:54.840 then have these barrels for a higher or price and 0:08:54.880 --> 0:08:57.640 a sunnier day. Christian, before you run, because we've got 0:08:57.679 --> 0:08:59.760 sixty seconds left and to make sure we use all 0:08:59.800 --> 0:09:02.000 its and we've got with you just briefly, do you 0:09:02.040 --> 0:09:03.640 think this esset class has taken a bit of a 0:09:03.720 --> 0:09:05.640 hit the credibility of it, it's taken a bit of 0:09:05.640 --> 0:09:08.959 a hit recently. It's a great question, and I do 0:09:09.040 --> 0:09:10.599 I think that's rather that we've seen we're in a 0:09:10.640 --> 0:09:16.000 bear market for oil ultimately creates this volatility kind of paralysis, 0:09:16.040 --> 0:09:17.200 which is, you know what, I don't want to go 0:09:17.200 --> 0:09:19.360 on holiday and come back and all down. This is 0:09:19.400 --> 0:09:22.000 just too high octane for me. And so with that 0:09:22.040 --> 0:09:24.520 in mind, I think that being able to put a 0:09:24.559 --> 0:09:28.040 floor on price is important. Ultimately that's open role in 0:09:28.360 --> 0:09:32.160 some ways, but equally the geopolitics of oil can often 0:09:32.240 --> 0:09:34.600 sort of get in the way. And this is where 0:09:34.600 --> 0:09:36.080 I think if you just take a step back and 0:09:36.160 --> 0:09:38.360 just cut through it all, we've got to come back 0:09:38.400 --> 0:09:40.760 to what's the marginal cost to produce this stuff? And 0:09:41.280 --> 0:09:42.800 that's what we're trying to say here, mean a hundred 0:09:42.800 --> 0:09:46.280 and fifty dollar oil called this, colleague, quite bold, but 0:09:46.520 --> 0:09:48.439 people are missing the detail, which is actually what we're 0:09:48.440 --> 0:09:50.599 saying is the aged dollar, long term wal prices, what 0:09:50.640 --> 0:09:53.400 you're gonna need to produced the additional bowl and that's 0:09:53.440 --> 0:09:57.760 bullish reguties. Christian, just absolutely fantastic to hear the work 0:09:57.800 --> 0:09:59.720 that goes behind a call like that. It's just brilliant. 0:09:59.760 --> 0:10:02.480 Christ a mantic there of JP Morgan, Tom out of London, 0:10:02.640 --> 0:10:10.600 brilliant Tom. When did we start to describe the holiday 0:10:10.600 --> 0:10:13.720 period as a period of getting together and breathing on 0:10:13.760 --> 0:10:16.440 each other and making each other sick. I'm enough to 0:10:16.559 --> 0:10:20.040 actually remember when there was a wonderful majesty of this 0:10:20.120 --> 0:10:24.559 towards Christmas. Sea. Yes, John, there were some excesses along 0:10:24.600 --> 0:10:28.800 the way. It's not about COVID, it's it's it's slipped 0:10:28.800 --> 0:10:31.040 away over the last ten years. Yeah, well we got 0:10:31.040 --> 0:10:32.800 to the point where we had saying at the Christmas 0:10:32.880 --> 0:10:34.599 party that worked out, Well, let's get it back to 0:10:34.920 --> 0:10:36.599 let's get it back with dust coast Rick now, but 0:10:36.679 --> 0:10:39.760 a Christmas spirit with our global allocation. From portfolio manager 0:10:39.760 --> 0:10:41.760 of black Rock Russ, let's start right here your line. 0:10:41.920 --> 0:10:44.320 We expect interest rates to rise from these low levels. 0:10:44.400 --> 0:10:46.520 We think any backup in long term rates will be 0:10:46.559 --> 0:10:50.880 contained given a still insatiable appetite for yield. How much 0:10:50.880 --> 0:10:53.520 of what we're seeing, Russ, is that How much of 0:10:53.559 --> 0:10:56.480 it is actually worries about the future, the future of 0:10:56.520 --> 0:11:00.679 this economy? Good more and Jonathan, still, look, I do 0:11:00.800 --> 0:11:04.679 think that what you're seeing now is the unexpected uncertainty 0:11:05.000 --> 0:11:07.040 over the virus. You know, we we thought we hope 0:11:07.080 --> 0:11:09.520 this was behind us. Clearly that's not the case, and 0:11:09.559 --> 0:11:12.400 this is why you've seen this modest pullback and yields. 0:11:12.440 --> 0:11:16.400 But again it's worth highlighting even a few weeks back, 0:11:16.600 --> 0:11:20.280 when inflation was pushing up against thirty year highs, nominal 0:11:20.320 --> 0:11:23.880 GDP was pushing up against multi decade highs, the tenure 0:11:23.960 --> 0:11:27.160 was at one. That's not something that would have made 0:11:27.240 --> 0:11:29.480 sense to us two or three years ago. I think 0:11:29.520 --> 0:11:32.240 a lot of it does come back to this longer 0:11:32.360 --> 0:11:34.440 term secular trend that has nothing to do with the 0:11:34.480 --> 0:11:37.400 near term inflation outlook, nothing to do with the virus 0:11:37.440 --> 0:11:39.720 over the next few months, and really is about the 0:11:39.720 --> 0:11:42.920 fact that we've been in a low yield world for decades. 0:11:43.040 --> 0:11:47.120 You've got an Asian population, people need income, and when 0:11:47.120 --> 0:11:50.640 you see these backup in yields, it's incredible how quickly 0:11:50.640 --> 0:11:53.920 people jump on that and enter the fray. And that's 0:11:53.960 --> 0:11:57.760 likely to continue even in this current environment. Rossimnor to 0:11:57.800 --> 0:12:00.440 ask you this because not only is a global l ocation, 0:12:00.520 --> 0:12:04.200 but it's you really thinking across assets as well. How 0:12:04.240 --> 0:12:09.120 important is the sector call into the new year versus 0:12:09.160 --> 0:12:14.800 the individuals security call. I think the sector call is 0:12:14.800 --> 0:12:16.720 going to be very important. You know, where you are 0:12:16.760 --> 0:12:19.400 in the sector always matters, But you think about the 0:12:19.520 --> 0:12:23.160 last year, you've seen days where the market is flat, 0:12:23.800 --> 0:12:26.600 and whether you're in the right sectors or the right style, 0:12:26.800 --> 0:12:29.839 he's made a huge difference in your performance. So you've 0:12:29.880 --> 0:12:31.680 got to get the stock pick right. But you've also 0:12:31.760 --> 0:12:34.240 got to think about what is the regime we're in, 0:12:34.520 --> 0:12:36.880 Or we're going to see inflation continue to climb, or 0:12:36.880 --> 0:12:39.599 we're going to see growth decelerate. Those are going to 0:12:39.720 --> 0:12:43.520 influence whether we continue to see technology dominate, whether we 0:12:43.559 --> 0:12:46.640 go back to that value cyclical trade. Uh So, I 0:12:46.640 --> 0:12:49.600 do think it's gonna matter a great deal, particularly in 0:12:49.679 --> 0:12:52.720 an environment in which the economy, while still very strong 0:12:53.360 --> 0:12:57.040 and growing above trend, is almost certain to decelerate in 0:12:57.080 --> 0:13:00.199 two thousand twenty two. Rus we're giving narrative to all 0:13:00.200 --> 0:13:03.040 sorts of macro themes, and it's unclear whether this narrative 0:13:03.080 --> 0:13:05.679 is actually playing out in markets. Instead, people are saying 0:13:05.880 --> 0:13:09.000 it's positioning. It's people hunkering down, cashing out of their 0:13:09.040 --> 0:13:11.720 positions after a tremendous year. If they were long equity, 0:13:11.760 --> 0:13:14.480 if they were long risk, What are you doing over 0:13:14.520 --> 0:13:17.120 the next couple of weeks as we head into two 0:13:17.160 --> 0:13:20.240 given the uncertainty and given the lack of conviction right 0:13:20.280 --> 0:13:23.800 now of what next year we'll bring. I think the 0:13:23.840 --> 0:13:26.960 short answers were we're sticking to our positions. Uh, you know, 0:13:27.040 --> 0:13:30.040 we've had a portfolio for most of the year, really 0:13:30.040 --> 0:13:32.920 all of the year that has been overweight equities. We're 0:13:32.920 --> 0:13:34.920 going to continue with that because we still think an 0:13:35.000 --> 0:13:38.680 environment of well above trend growth and very low rates 0:13:38.760 --> 0:13:42.240 is still positive for equities. Were underweight duration. Again, we 0:13:42.280 --> 0:13:44.560 don't think right smelt up, but we're not changing that. 0:13:45.200 --> 0:13:47.080 And you know, we're also sticking to what I would 0:13:47.080 --> 0:13:50.000 call a Barbell approach on the equity side. I don't 0:13:50.000 --> 0:13:52.760 think this is the time to chase steep value. I 0:13:52.760 --> 0:13:54.680 don't think this is a time to go all in 0:13:54.800 --> 0:13:57.920 on early growth. It's really a matter of having high 0:13:58.040 --> 0:14:00.760 quality cyclicals that are going to benefit for this recovery 0:14:01.080 --> 0:14:05.439 and sticking with some of the longer term themes and technology, communications, 0:14:05.480 --> 0:14:07.600 healthcare that we think are still going to work until 0:14:07.640 --> 0:14:09.360 next year. Why do you think the dollar is going 0:14:09.400 --> 0:14:11.080 to continue to strengthen if a lot of the rate 0:14:11.120 --> 0:14:14.440 hikes have already been priced in, you know, the dollar, 0:14:14.600 --> 0:14:16.680 I'm going to frame it slightly differently if I can. 0:14:16.840 --> 0:14:20.080 I think the dollar has become one of the last 0:14:20.120 --> 0:14:23.080 hedges that are really working in this environment. We all 0:14:23.120 --> 0:14:26.280 know that, you know, the correlation between stocks and bonds 0:14:26.280 --> 0:14:31.160 have shifted up. Has been a problem this year, given 0:14:31.160 --> 0:14:34.320 that as traded with risk, not against risk. What's happened 0:14:34.360 --> 0:14:38.560 with the dollar is that it's actually become fairly negatively 0:14:38.600 --> 0:14:41.280 correlated with stocks. And it sounds like, well, you know, 0:14:41.480 --> 0:14:44.640 fairly geeky observation, but it's important because when you get 0:14:44.680 --> 0:14:48.240 these days when the market is getting hit on rate volatility, 0:14:48.360 --> 0:14:50.480 which has happened a lot more in the last six 0:14:50.520 --> 0:14:53.480 to eight months, the dollar has generally worked as a hedge. 0:14:53.520 --> 0:14:56.040 So we've been maintaining and overweight to the dollar. We're 0:14:56.040 --> 0:14:59.040 going to keep that into two thousand twenty two. Sintensity, 0:14:59.120 --> 0:15:01.280 catch up and good to see you as always, Rust 0:15:01.280 --> 0:15:09.040 Coast of black Rock, Thank you, sir. It is a 0:15:09.120 --> 0:15:11.920 hundred eighty nine miles from Munich to Davos, and this 0:15:12.000 --> 0:15:17.320 is a real important idea. Yesterday DLD Munich was canceled 0:15:17.360 --> 0:15:20.520 for January of two thousand twenty two, no doubt, getting 0:15:20.560 --> 0:15:25.840 out front of shoals and Chancellor miracle as well and Lisa, 0:15:25.880 --> 0:15:29.680 to me, that's the first real symbol of the log vector. 0:15:29.800 --> 0:15:33.880 We see in Austria terrible, Switzerland somewhat like the UK, 0:15:34.080 --> 0:15:37.800 Frankly and Germany in between, and they're migrating in the 0:15:37.840 --> 0:15:41.600 wrong direction. It's so frustrating, especially because of vaccination rate 0:15:41.640 --> 0:15:43.960 and a lot of these nations in Europe is actually 0:15:44.040 --> 0:15:46.760 better than the United States. You wonder what we have 0:15:46.920 --> 0:15:49.480 to come as we head into the winter months and 0:15:49.520 --> 0:15:52.360 when we can just leave the pandemic era and enter 0:15:52.520 --> 0:15:55.640 something more endemic that people just deal with. The latest 0:15:55.760 --> 0:16:01.080 headline of Bundestag to have quote open vote on mandatory vaccination. 0:16:01.440 --> 0:16:05.480 We have a mandatory conversation with Halline Becker, senior research 0:16:05.520 --> 0:16:09.480 Analystic Cow and barely describes as she has seen it all. 0:16:10.120 --> 0:16:14.880 What does it symbolize, Hallane, excuse me from Europe and 0:16:14.880 --> 0:16:18.760 do we see those tensions of Europe come over to 0:16:18.960 --> 0:16:25.360 America economy and America aviation? Yeah, morning, Tom, thanks for 0:16:25.440 --> 0:16:29.160 having me. Um. Yeah, we're really concerned about dusk because 0:16:29.240 --> 0:16:32.520 typically what happens in Europe gets exported to the United 0:16:32.560 --> 0:16:36.160 States with some type of lag. Um. And I think 0:16:36.200 --> 0:16:38.880 you're right, we are going in the wrong direction. We 0:16:39.040 --> 0:16:41.880 need to move forward. Um. Lisa made the comment that 0:16:41.960 --> 0:16:44.520 this is endemic. We all get flu shots every year, 0:16:44.560 --> 0:16:47.880 so why wouldn't we get booster shots for the coronavirus 0:16:47.920 --> 0:16:50.400 every year? And it's a flu, it's a type of flu, 0:16:50.880 --> 0:16:55.160 a bad one, admittedly, But in order to have vibrant economies, 0:16:55.200 --> 0:16:59.200 you need vibrant airline industries. And the only reason the 0:16:59.240 --> 0:17:01.920 world has been able to get as vaccinated as it 0:17:02.000 --> 0:17:04.919 has in the past one year has been because the 0:17:04.960 --> 0:17:09.840 airline industry, fed x UPS, DHL and others have got 0:17:10.080 --> 0:17:14.000 really distributed all this vaccine um that's enabled us to 0:17:14.000 --> 0:17:16.600 get to where we are. So why wouldn't we just 0:17:16.720 --> 0:17:20.760 keep moving forward and instead of moving back? Elena, what 0:17:20.880 --> 0:17:23.080 we would and what we could and what we should 0:17:23.080 --> 0:17:26.080 do is not necessarily what is happening, and we are 0:17:26.119 --> 0:17:29.040 seeing these restrictions put back into place. We are seeing 0:17:29.040 --> 0:17:32.840 global conferences canceled, like the d LD in munich As 0:17:32.840 --> 0:17:36.600 how much just mentioning what is the potential ramification for 0:17:36.640 --> 0:17:40.679 an airline industry heavily indebted still from the pandemic, dealing 0:17:40.840 --> 0:17:45.840 with reduced capacity, reduced numbers of travelers, reduced business travel. 0:17:46.160 --> 0:17:49.040 How much of a hit are they going to take? Yeah, 0:17:49.200 --> 0:17:52.080 I don't know the specific answer to that. Question, because 0:17:52.240 --> 0:17:56.280 to your point about liquidity, all the airlines grabbed as 0:17:56.359 --> 0:17:58.960 much cash as they could last year, and the government 0:17:59.000 --> 0:18:02.720 was governments, not just the United States, but worldwide government 0:18:02.760 --> 0:18:05.720 supported the airline industry to the tune of two billion 0:18:05.760 --> 0:18:09.320 dollars and that money is still on balance sheet. If 0:18:09.359 --> 0:18:12.159 you look at all the US airlines specifically, which is 0:18:12.560 --> 0:18:16.600 obviously my purview, UM, you'll see that they have huge 0:18:16.720 --> 0:18:21.880 liquidity position, six billion dollars of liquidity, and and they 0:18:21.920 --> 0:18:27.840 weren't going to repay debt um that quickly. Their their 0:18:27.960 --> 0:18:31.440 goal is to keep that liquidity in case of scenarios 0:18:31.480 --> 0:18:36.120 like this where you see continued UM restrictions in place, 0:18:36.240 --> 0:18:39.200 or where we make it difficult to travel for business 0:18:39.760 --> 0:18:42.880 because you require testing and so on, and so it 0:18:42.880 --> 0:18:45.919 makes it and practical to do a one day trip 0:18:46.000 --> 0:18:48.440 to Europe or something like two day trip to Europe whatever. 0:18:48.840 --> 0:18:52.919 So so I think that, um, the liquidity side of 0:18:53.040 --> 0:18:55.680 the equation is fine. I think to your point about demand, 0:18:56.440 --> 0:19:01.360 we think we're seeing demand x business traffic and international 0:19:01.440 --> 0:19:05.000 that exceeds two thousand nineteen levels UM. Two point four 0:19:05.080 --> 0:19:08.280 million people were screened on Sunday, which is a near 0:19:08.520 --> 0:19:12.639 which is a pandemic record where clearly within ten percent 0:19:12.760 --> 0:19:15.159 of where we were in two thousand nine. So I 0:19:15.200 --> 0:19:18.080 think that's a good sign. Um. I was at an 0:19:18.080 --> 0:19:21.160 industry event last night. A lot of the airlines were there. 0:19:21.200 --> 0:19:26.240 Not well, few airlines were there, and um, they said 0:19:26.240 --> 0:19:28.800 they haven't really seen an impact, but are expecting in 0:19:28.840 --> 0:19:32.560 an impact, but they haven't seen cancelations for December yet. 0:19:32.600 --> 0:19:35.520 They're still seeing December bookings Alane, And just to sort 0:19:35.520 --> 0:19:38.439 of put this into cold relief, if there is another 0:19:38.480 --> 0:19:41.879 downturn and travel, if the US implements some curves similar 0:19:41.880 --> 0:19:44.639 to what we're seeing in Europe, are there airlines that 0:19:44.720 --> 0:19:49.879 will not be able to survive it? Probably yes, Um, 0:19:50.000 --> 0:19:52.360 I mean it will be tough. Uh. We don't have 0:19:52.400 --> 0:19:55.920 any cell recommendations, but we actually do have bone cell 0:19:56.080 --> 0:19:59.280 as I think about it. Um, But yeah, if we 0:19:59.359 --> 0:20:03.040 go into a downturn again, even with their massive liquidity, 0:20:03.280 --> 0:20:06.639 some some one or two airlines, well, this is the 0:20:06.680 --> 0:20:09.560 gloomy at least, this is the gloomyous Helene Becker I've 0:20:09.600 --> 0:20:12.119 ever seen. Helene. Let me cut to the chase. I 0:20:12.240 --> 0:20:15.360 own United Airlines at ninety You told me to get out. 0:20:15.440 --> 0:20:18.199 I didn't. I got crushed you loaded the boat in 0:20:18.280 --> 0:20:21.520 March of two thousand twenty. Is this an opportunity to 0:20:21.600 --> 0:20:26.560 reduct March of two thousand twenty again? Yeah, I think so. 0:20:26.840 --> 0:20:30.160 I mean to your point of being bullish, be bearish. Um, 0:20:30.160 --> 0:20:33.200 we're we have I think seven or eight buys actually, 0:20:33.920 --> 0:20:36.440 and I was looking. I went out to Lynch yesterday 0:20:36.440 --> 0:20:37.919 and the stocks were up, and I came back and 0:20:37.920 --> 0:20:41.400 they were down six. I do think it's a it's 0:20:41.400 --> 0:20:45.800 a significant overreaction and I need their opportunities. So yes, 0:20:46.400 --> 0:20:48.520 thank you, Helene Becker. Thank you so much. On something 0:20:48.520 --> 0:20:50.760 we all care about, which is aviation. We do this 0:20:51.200 --> 0:20:59.760 of stunning headlines out of Germany. A theme this week 0:21:00.000 --> 0:21:02.879 has been uncertainty. It's out there and one of the 0:21:02.920 --> 0:21:05.720 best people we know to measure uncertainty is a gentleman 0:21:05.720 --> 0:21:09.560 out of the Wisconsin Complex of economics. Birthday boy Michael 0:21:09.600 --> 0:21:12.680 Darta joins us this morning. Michael Darta, Happy thirty nine, 0:21:12.720 --> 0:21:16.240 thrilled to see your cotton chiseled at thirty nine. Michael, 0:21:16.320 --> 0:21:21.640 you mix in the stock market synthesis with some wonderful economics. 0:21:21.840 --> 0:21:24.520 I want to start with the animal spirit that links 0:21:24.560 --> 0:21:28.520 the markets to our economy. What does our nominal GDP 0:21:28.760 --> 0:21:33.480 look like forward? Well, it looks pretty incredible going into 0:21:33.480 --> 0:21:36.560 the fourth quarter. Tom we have tracking estimates pushing ten 0:21:36.640 --> 0:21:40.960