WEBVTT - Surveillance: Fuel Rationing with Blanch (Podcast) 0:00:05.160 --> 0:00:09.240 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.240 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.320 --> 0:00:18.640 insight from the best and economics, finance, investment, and international relations. 0:00:18.880 --> 0:00:23.880 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.960 --> 0:00:29.720 and of course on the Bloomberg Terminal. What we've tried 0:00:29.800 --> 0:00:33.080 to do is inform you about the commodity crisis you're 0:00:33.120 --> 0:00:37.760 living out front. First was Francisco Blanche and I remember 0:00:37.760 --> 0:00:40.640 the day a number of quarters ago where he shocked 0:00:40.640 --> 0:00:44.159 the world over a hundred dollars of barrel. He's provided 0:00:44.240 --> 0:00:47.559 real intellectual leadership on trying to figure out where the 0:00:47.600 --> 0:00:50.360 next galon of gas is going to be. Price. Francisco, 0:00:50.400 --> 0:00:52.280 thank you for joining this morning. I want to go 0:00:52.320 --> 0:00:54.640 to the heart of your note, Francisco. You've got to 0:00:54.720 --> 0:00:57.760 buy us upward in price, and you are looking at 0:00:57.800 --> 0:01:04.040 the price responsiveness, the price elasticity of demand. Are we 0:01:04.120 --> 0:01:09.040 going to see demand destruction? Is oil moves up or 0:01:09.319 --> 0:01:15.279 is it in elastic Uh? Look, Tomman, high prices always 0:01:15.280 --> 0:01:17.520 fix high prices, so we are certainly going to see 0:01:17.560 --> 0:01:20.119 some demand destruction. One of the challenges and You may 0:01:20.200 --> 0:01:23.200 remember this from back back in the eight when we're 0:01:23.200 --> 0:01:25.920 talking about the issues, is that as prices go up, 0:01:26.280 --> 0:01:29.440 governments tend to use fuel subsidies as a tool to 0:01:29.520 --> 0:01:34.080 keep people happy. So we are seeing a curtailment of 0:01:34.240 --> 0:01:37.319 fuel taxes across much of Europe. We've also seen some 0:01:37.520 --> 0:01:42.000 U S States doing the same thing, Mexico, many emerging markets. 0:01:42.080 --> 0:01:46.080 So as prices go up, government strive to reduce that elasticity, 0:01:46.080 --> 0:01:48.480 and they all let prices work very much, and therefore 0:01:48.560 --> 0:01:51.520 you end up getting bigger movements on the wholesale market, 0:01:51.840 --> 0:01:54.639 which is kind of what we've seen so far. Um 0:01:54.680 --> 0:01:56.480 So that's being a big issue. And the other big issue, 0:01:56.480 --> 0:01:58.680 obviously is that we we have, as I like to say, 0:01:59.040 --> 0:02:02.440 the Mother Russia full supply shooks. Uh is just a 0:02:02.600 --> 0:02:05.840 very very big shot. Francisco, I gotta go here because 0:02:05.880 --> 0:02:10.680 Brian moynihan and Davos was exceptionally positive and the resiliency 0:02:10.720 --> 0:02:13.959 of the American consumer. Do you care about the price 0:02:14.000 --> 0:02:18.840 elasticity and demand destruction as gasoline goes to seven dollars 0:02:18.880 --> 0:02:22.959 a gallon? I do care, But but I will say 0:02:23.000 --> 0:02:25.320 that if you look across the world, and this is 0:02:25.360 --> 0:02:28.320 probably one of the One of our most popular piece 0:02:28.400 --> 0:02:33.280 of work, which is the energy share of GDP across 0:02:33.280 --> 0:02:35.320 the world, is actually quite high. We're almost back to 0:02:35.360 --> 0:02:38.240 the run revolutional levels for the entire planet in terms 0:02:38.240 --> 0:02:40.880 of the amount of income that we're spending our energy. 0:02:41.040 --> 0:02:44.359 I'm talking about quantities of oil, gas, and coal multiplied 0:02:44.360 --> 0:02:47.200 by the price and divided by a nominal GDP. But 0:02:47.280 --> 0:02:49.239 in the US you have a twist, and the twist 0:02:49.320 --> 0:02:52.160 this that you haven't had the global gas and power 0:02:52.240 --> 0:02:54.440 prices that we've seen in Europe, that we've seen in Asia. 0:02:54.680 --> 0:02:57.560 So the US is something during record high not your 0:02:57.600 --> 0:02:59.960 gas or power prices. And I know Henry hops up, 0:03:00.200 --> 0:03:01.920 but at the end of the day, the US not 0:03:02.000 --> 0:03:05.040 facing the same kind of energy prices in aggregate that 0:03:05.120 --> 0:03:07.520 the rest of the world's suffering from. So I think 0:03:07.520 --> 0:03:10.800 the US is a lot less exposed. Plus also remember 0:03:11.200 --> 0:03:13.840 um the dollar is very very strong, so that means 0:03:14.080 --> 0:03:17.679 America's has been insulated also more so than other countries 0:03:18.160 --> 0:03:21.440 um that are facing this incredibly a strong dollar and 0:03:21.600 --> 0:03:24.960 strong commodity prices. And perhaps the third fact here is 0:03:25.000 --> 0:03:29.840 that the US is energy independent on its past to 0:03:29.880 --> 0:03:34.560 become energy dominant, which which in my mind also shields 0:03:35.080 --> 0:03:39.960 the US from the vagaries of global energy prices. So 0:03:39.960 --> 0:03:42.480 so I think, yes, we're gonna see recessions, but the 0:03:42.600 --> 0:03:45.240 question is where and when, And the US is probably, 0:03:45.240 --> 0:03:47.400 in my mind at the bottom of the list in 0:03:47.440 --> 0:03:51.520 the countries that we've impacted by this skyrocketing energy prices, 0:03:51.760 --> 0:03:53.600 so forsas because there's a lot to impact there. I 0:03:53.600 --> 0:03:55.240 want to just first get your sense of how close 0:03:55.280 --> 0:03:56.880 we are to a full blown, as you call it, 0:03:56.960 --> 0:04:02.000 nine style oil crisis. We're not dot far. I mean, 0:04:02.040 --> 0:04:04.600 I think we've seen the global gas empower crisis already. 0:04:04.800 --> 0:04:07.600 Uh in the past twelve months. It started with thermal 0:04:07.640 --> 0:04:11.440 coal in China. I remember, the most expensive energy commodity 0:04:11.440 --> 0:04:15.560 ain't oil. It's really been a thermal coal and natural gas. 0:04:15.760 --> 0:04:18.120 We are at four hundred dollars a ton a thermal coal. 0:04:18.360 --> 0:04:20.359 That's twice the level of what we saw back in 0:04:20.400 --> 0:04:23.320 the financial crisis, you know eight when oil went to 0:04:23.320 --> 0:04:25.679 a hundred and forty seven doors of barrow. We again 0:04:25.720 --> 0:04:28.960 four hundred dollars in town. That's about hundred dollars barrel 0:04:29.000 --> 0:04:32.320 of oil equivalent. Uh So oil at a hundred and 0:04:32.320 --> 0:04:35.360 ten hundred and fifteen ain't expensive. When calls almost the 0:04:35.400 --> 0:04:39.080 same price level. Um. The natural gas has also been 0:04:39.120 --> 0:04:42.599 at record levels in Europe. We've seen nearly five hundred 0:04:42.600 --> 0:04:46.240 dollars a barrel of natural gas prices about eighty bucks 0:04:46.240 --> 0:04:49.160 and mmbtu at the highest back in March. So so 0:04:49.240 --> 0:04:52.760 that's where the real issue is. Oil is is yet 0:04:52.800 --> 0:04:55.440 not in crisis. It could go into a crisis, and 0:04:55.440 --> 0:04:57.719 I think I think that's the real problem here with 0:04:57.720 --> 0:05:00.360 with the way that sanctions may be implemented, how much 0:05:00.480 --> 0:05:03.080 Russians supply do we end up lossing and how how 0:05:03.120 --> 0:05:06.960 can that impact the supply man balances here. That's what 0:05:06.960 --> 0:05:09.240 I'm worried about. Francisco, ID love some real time analysis 0:05:09.279 --> 0:05:11.640 from you on the headlines we're getting from opaque class 0:05:11.760 --> 0:05:14.360 delicates indicating that they could be discussing an addition of 0:05:14.440 --> 0:05:17.400 six hundred thous and barrels a day against the scheduled 0:05:17.400 --> 0:05:20.600 four hundred and thirty thousand. Also some indication they might 0:05:20.640 --> 0:05:24.840 decide today on July and August hikes. Francisco, I'll tell 0:05:24.839 --> 0:05:26.359 you what the market is doing off the back of this, 0:05:26.480 --> 0:05:29.040 it's a raising losses cruised down about six tenths of 0:05:29.120 --> 0:05:32.040 one percent. W T I back to would fourteen fifty. 0:05:32.160 --> 0:05:36.080 What's your read on those kind of headlines, Well, my 0:05:36.440 --> 0:05:40.200 reader is that opec opic class collectively does not want 0:05:40.240 --> 0:05:43.960 to be blamed for oil prices skyrocketing here on the 0:05:44.000 --> 0:05:47.400 back of the European silections on Russia. So we're trying 0:05:47.440 --> 0:05:52.200 to increase production and litigate the upper price pressures. But 0:05:52.360 --> 0:05:55.120 remember one of the biggest challenge of the opencasts in 0:05:55.160 --> 0:05:58.839 this market is that it doesn't have a spare refining capacity. 0:05:59.200 --> 0:06:01.559 Russia has not all of the world's second largest crude 0:06:01.600 --> 0:06:05.840 oil exporter, it's also the second largest refined patrolling product exporter, 0:06:06.160 --> 0:06:10.760 and of the diesel that goes into the ICE contract, 0:06:10.800 --> 0:06:13.600 into the GASOW contract, the most important diesel contract in 0:06:13.640 --> 0:06:18.320 the world ICE gas oil is actually Russian. So you're 0:06:18.360 --> 0:06:20.360 taking a lot of supply out of out of a 0:06:20.480 --> 0:06:24.120 very tight market. And and and unfortunately, when you don't 0:06:24.120 --> 0:06:27.120 have the refining capacity available in Europe's sanction both crude 0:06:27.160 --> 0:06:30.840 and controlling products, um, there's not that much that Ope 0:06:30.920 --> 0:06:32.839 can do. They can try to keep a little on 0:06:32.880 --> 0:06:35.760 crude oil, but that's not necessarily going to help the 0:06:35.800 --> 0:06:38.479 price of diesel. The price of gasoline, which is sualtamately 0:06:38.560 --> 0:06:40.400 what people buy at the top. Well, Francisco, just to 0:06:40.400 --> 0:06:43.080 found a word from you then on that celpic ope 0:06:43.080 --> 0:06:46.200 can't do anything seemingly to influence the price of things 0:06:46.200 --> 0:06:47.760 that the gascon into what you just said because of 0:06:47.800 --> 0:06:50.440 revigning capacity. Where does it leave the administration here in 0:06:50.440 --> 0:06:53.200 the United States? As the president, according to our reporting, 0:06:53.279 --> 0:06:55.600 gears up from mating with the Crown Prince. What can 0:06:55.600 --> 0:06:59.360 the president do here in America? Well, look, I mean, 0:06:59.400 --> 0:07:01.480 I think I think we continue to do what we've seen, 0:07:01.800 --> 0:07:04.840 release a little bit of SPR. The SPR has some 0:07:04.960 --> 0:07:07.839 barrels of the trolley product available which are are being 0:07:08.240 --> 0:07:11.120 being released into the market. I think I think the challenges, 0:07:11.680 --> 0:07:15.480 honestly is that that we are we are tied on 0:07:15.520 --> 0:07:19.160 every front. Commercial inventories are very low as our government 0:07:19.160 --> 0:07:21.240 inventories because we're growing up quickly. So I think I 0:07:21.240 --> 0:07:23.880 think perhaps, you know, we should be started thinking about 0:07:24.240 --> 0:07:29.560 demand rationing measures, maybe stop subsidizing fuels, but more importantly, 0:07:29.640 --> 0:07:33.640 maybe think about limiting speed on highways and doing things. 0:07:33.760 --> 0:07:36.040 Actually do you think, Francisco, and that's where this could 0:07:36.080 --> 0:07:40.920 go in this country? Demand Rahan, Well, maybe maybe not 0:07:41.040 --> 0:07:43.560 in the US, maybe having enough to pass in the US, 0:07:43.640 --> 0:07:45.680 but crowly other parts of the world. I think we're 0:07:45.680 --> 0:07:49.040 gonna have to end up seeing some demand Rasian ng um, Yeah, tectic. 0:07:49.160 --> 0:07:51.480 So I think we're going into demand rationing on the 0:07:51.480 --> 0:07:55.040 back of the smashers against Russian. Well, Francisco great to 0:07:55.040 --> 0:07:57.840 catch up along. The conversation needs to be had. Francisco 0:07:58.520 --> 0:08:06.480 of Bank America truly to celebrate for Bloomberg surveillance. And 0:08:06.520 --> 0:08:08.920 we do this, of course with miss Sandberg out the 0:08:08.920 --> 0:08:12.800 door it Facebook. I refused, David to call it meta. 0:08:12.880 --> 0:08:15.280 David Kirkpatrick joins us live in our studios here in 0:08:15.320 --> 0:08:17.680 New York. And you were with me the day of 0:08:17.720 --> 0:08:21.480 the Facebook I p O with Paul Kadrowski, and you 0:08:21.560 --> 0:08:23.960 had truly one of the greatest calls in the history 0:08:24.000 --> 0:08:28.480 of surveillance. Everybody was in a complete lather about this 0:08:28.600 --> 0:08:31.760 future of this clown out of a dorm room in Harvard, 0:08:31.840 --> 0:08:34.720 and you said, would everybody calm down? I wrote the 0:08:34.720 --> 0:08:37.640 Facebook effect, and this kid will make it. And they've 0:08:37.679 --> 0:08:40.920 done very well. They've done on balance, you can hardly 0:08:40.960 --> 0:08:43.760 play say they haven't done beautifully. What a hundred and 0:08:43.760 --> 0:08:46.679 twelve billion in revenue last year or something like that. 0:08:46.760 --> 0:08:50.280 Page one fifty nine, the Facebook Effect, the CEO. How 0:08:50.320 --> 0:08:53.600 did they meet? How did Zuckerberg choose Sandberg or did 0:08:53.640 --> 0:08:57.040 she choose herself? No, I don't think she did choose herself. 0:08:57.040 --> 0:08:59.200 And thank you for having me, Tom. They met at 0:08:59.240 --> 0:09:02.640 a party that and Rosenswade was hosting UH out of 0:09:02.679 --> 0:09:05.719 Silicon Valley. He was at Yeahoo at the time. UM 0:09:05.760 --> 0:09:08.480 and Zuckerberg pulled her aside and and it was sort 0:09:08.480 --> 0:09:11.320 of like riveted. She was riveted by that. And then 0:09:11.559 --> 0:09:16.080 Um Roger mcnabie, ironically, who has become a massive Facebook critic, 0:09:16.240 --> 0:09:19.360 really helped broker their relationship because he was a long 0:09:19.440 --> 0:09:23.400 time friend of Cheryl's and advised Mark that she would 0:09:23.440 --> 0:09:26.480 be a really great person to do it and interesting 0:09:26.559 --> 0:09:30.800 and helped convince her that she should consider it seriously. David, 0:09:30.880 --> 0:09:33.040 you know, I was a big fan of the hiring 0:09:33.080 --> 0:09:35.760 of Cheryl Sandberg because you know, I viewed Facebook at 0:09:35.800 --> 0:09:38.440 its basis just simply an advertising company, and they didn't 0:09:38.480 --> 0:09:41.199 really have a big time advertising person there, someone who 0:09:41.200 --> 0:09:43.040 could sit down with the likes of Coca Cola and 0:09:43.080 --> 0:09:46.640 Procter and Gamble. Cheryl certainly could. And given all that, 0:09:46.679 --> 0:09:49.520 and we've got a hundred and twenty billion dollars of revenue, 0:09:49.600 --> 0:09:53.320 so I mean, she certainly did her job extraordinarily. Well 0:09:53.520 --> 0:09:58.840 what's her legacy, Well, her legacy is an extraordinary advertising 0:09:58.840 --> 0:10:02.080 business which she built from really literally almost nothing to 0:10:02.160 --> 0:10:05.880 become the clear number two to Google as the dominant 0:10:05.920 --> 0:10:11.600 advertising player in the world. Uh at e. Extraordinary profitability, 0:10:11.640 --> 0:10:14.880 I mean more profitability per dollar of revenue during most 0:10:14.920 --> 0:10:17.320 of its history than Google, so you know, and she 0:10:17.440 --> 0:10:20.120 also built that business largely too, So you know, she 0:10:20.320 --> 0:10:24.320 is kind of the primary architect of the advertising based 0:10:24.360 --> 0:10:26.720 business model of the Internet. You could even go that 0:10:26.800 --> 0:10:29.760 far and that, but that is a mixed legacy because, 0:10:29.840 --> 0:10:32.920 let's face it, as Roger McNamee, who I just mentioned, 0:10:33.040 --> 0:10:35.679 would be the first to tell you it, ad based 0:10:35.760 --> 0:10:41.800 internet is intrinsically a dangerous medium because of the tendency 0:10:41.920 --> 0:10:45.880 of platforms to want to put anything into it that 0:10:46.040 --> 0:10:49.760 generates page views and eyeballs, and that has in turn 0:10:50.000 --> 0:10:56.280 led to extraordinary disinformation flows uh anti democratic behavior, hate speech, 0:10:56.880 --> 0:10:59.520 which is all hypnotic to the user and keeps them 0:10:59.520 --> 0:11:03.360 engaged since turning you know, clicking, clicking, clicking. But in 0:11:03.440 --> 0:11:05.640 the end, so that's a it's a really in and 0:11:05.720 --> 0:11:08.400 yang story with Caryl Sandberg. So I guess one of 0:11:08.400 --> 0:11:10.040 the questions I think we're all gonna be asking for 0:11:10.080 --> 0:11:13.800 many years is what is her responsibility in that aspect 0:11:13.840 --> 0:11:17.000 of the growth of Facebook visa VI Mark Zuckerberg, who 0:11:17.000 --> 0:11:19.640 one could argue, not just as the controlling shareholder, he 0:11:19.760 --> 0:11:22.960 is the autocrat of this book. I love calling him 0:11:23.000 --> 0:11:25.360 the autocrat of Facebook because it absolutely is true. I 0:11:25.400 --> 0:11:28.920 think that's where it's harder to say, because even though 0:11:28.960 --> 0:11:34.280 there have been some reports, including in the book, uh 0:11:34.520 --> 0:11:37.560 the Ugly truth that came out last year, that she 0:11:37.640 --> 0:11:40.880 really did try to push back against some of Suckerberg's 0:11:40.880 --> 0:11:44.360 decisions regarding speech and how Facebook ought to be governed, 0:11:44.880 --> 0:11:49.199 you know, she really clearly didn't do enough. She also 0:11:49.440 --> 0:11:52.400 really has a tendency if whenever she's in public, to 0:11:52.520 --> 0:11:56.400 sound ridiculously Pollyanna ish and not to acknowledge, not to 0:11:56.440 --> 0:12:00.320 acknowledge any potential problems, which is really, I think magic, 0:12:00.360 --> 0:12:02.600 because if she had been more honest with the public, 0:12:03.200 --> 0:12:06.160 at least people might have forgiven the company a little bit. 0:12:06.200 --> 0:12:08.640 But we we cannot forgive them because they have caused 0:12:08.640 --> 0:12:12.800 serious harm to society. Your bookends with Zuckerberg bedazzled at 0:12:12.840 --> 0:12:15.560 the end of a driveway, almost in shock over the 0:12:15.559 --> 0:12:24.400 initial Facebook a month that. Okay, but now, what what 0:12:24.600 --> 0:12:28.360 kind of CEO does Mr Zuckerberg? Does he have a 0:12:28.360 --> 0:12:30.800 gray hair yet? I don't know? Okay, what kind of 0:12:30.840 --> 0:12:34.600 CEO does he need? Well? Does he need? You mean 0:12:34.640 --> 0:12:37.640 instead of himself? You think he should hire somebody else 0:12:38.160 --> 0:12:42.640 he can do it, needs somebody to run the I 0:12:42.679 --> 0:12:45.960 am worried that he with Saryl leaving, he has nobody 0:12:46.000 --> 0:12:49.840 really to push back exactly, so she's pushed back ineffectively. 0:12:49.880 --> 0:12:53.080 It would be my guess. But the fact is he 0:12:53.240 --> 0:12:56.240 is an autocrat with all power who has bad judgment. 0:12:56.960 --> 0:13:00.520 He's a brilliant engineer, a brilliant product strategist, but he 0:13:00.559 --> 0:13:04.480 doesn't understand how to consider the impact of his company 0:13:04.520 --> 0:13:09.400 in society nearly enough. And he needs somebody who really, 0:13:09.640 --> 0:13:12.600 You know, when they hired Nick Clegg, before that, I 0:13:12.679 --> 0:13:15.520 used to say, I wrote a past one. I wrote it, No, 0:13:15.640 --> 0:13:17.839 Nick Clegg is not going to be the CEO one 0:13:18.160 --> 0:13:21.080 or CEO. But I argued in a piece before that 0:13:21.120 --> 0:13:24.200 happened that they should hire Barack Obama. The scale of 0:13:24.280 --> 0:13:27.920 Facebook's challenge is so huge, and their role in society 0:13:27.960 --> 0:13:30.760 and every country in the world is so massive, they 0:13:30.800 --> 0:13:36.880 need the most sophisticated political, sociological, you know, humane judgment, 0:13:36.920 --> 0:13:40.200 because that's a chairman. They don't have that. That's a 0:13:40.640 --> 0:13:43.520 that's a chairman position. It could be, but every time 0:13:43.559 --> 0:13:46.199 anybody on the board starts to push back against Zuckerberg, 0:13:46.240 --> 0:13:47.840 he clears them off the board. Where have you been? 0:13:47.880 --> 0:13:49.800 How come you haven't been into tuck to us? Well, 0:13:49.840 --> 0:13:53.559 you haven't asked me man pandemic. I was when do 0:13:53.679 --> 0:13:55.920 we get a new book out? Not to Facebook effect, 0:13:55.920 --> 0:13:58.920 but the world, the Elon effect. No, I'm not writing that. 0:13:59.840 --> 0:14:01.880 If you talking about when do we get a new book? 0:14:02.080 --> 0:14:05.240 I don't, don't don't don't, don't, don't pressure me. I 0:14:05.240 --> 0:14:07.520 got a company to run. I run Techonomy. I'm really 0:14:07.960 --> 0:14:11.480 enjoying that. And how's that doing coming out of the pandemic? Seriously, Well, 0:14:11.720 --> 0:14:14.440 we're actually, you know, we're really working hard on climate. 0:14:14.520 --> 0:14:17.240 That's our big issue now, climate tech. And we had 0:14:17.240 --> 0:14:20.800 a Techonomy Climate conference in March in Mountain View, which 0:14:20.800 --> 0:14:24.080 was extraordinarily successful. We just had two Techonomy climate events 0:14:24.080 --> 0:14:27.600 in Davos last week. And I feel like this is 0:14:27.640 --> 0:14:29.560 the issue that I have to work on. So I 0:14:29.600 --> 0:14:33.120 honestly care about that more than Facebook's crime flying around. 0:14:33.120 --> 0:14:35.400 The tech guys flying around in their golf streams care 0:14:35.440 --> 0:14:38.720 about the energy crisis. They climate you got, They pretend to, 0:14:39.000 --> 0:14:42.080 but they don't care. Anybody who flies in a gulf 0:14:42.080 --> 0:14:44.800 stream doesn't care about the climate. I think that. I 0:14:44.840 --> 0:14:46.560 hate to say it, but I wouldn't be surprised at that. 0:14:47.360 --> 0:14:49.840 And they're lined up like forty two. I counted forty 0:14:49.840 --> 0:14:54.200 two golf streams, including the surveilance golf stream. Of course, no, Francene, okay, okay, 0:14:54.680 --> 0:14:57.320 you didn't have your own though, No, no, we share it, 0:14:57.360 --> 0:14:58.960 and they would let me upgrade to the four. I've 0:14:59.000 --> 0:15:01.200 got the three. It's little I can't stand. I feel 0:15:01.200 --> 0:15:05.120 guilty when I fly across the Atlantic from Oh, stop 0:15:05.160 --> 0:15:07.640 stop with this shame. This is stuff of flying. I 0:15:07.640 --> 0:15:09.520 don't feel that guilty not to do it. But the 0:15:09.560 --> 0:15:13.520 reality is we have to reconsider our behavior. Society has 0:15:13.560 --> 0:15:16.479 to reconsider. It's the bad newses around the time. David Kirkpatrick, 0:15:16.600 --> 0:15:19.080 thank you so much. Reader's book Folks is dated, but 0:15:19.240 --> 0:15:27.640 fresh is all go out. Kathy Jones joins us now 0:15:27.720 --> 0:15:30.000 she fixed and comes strategist at the Swap Center for 0:15:30.080 --> 0:15:35.000 Financial Research Kathy once Sweeny on a German tenure this morning. 0:15:35.000 --> 0:15:37.480 For all this talk of peak inflation, peak, heel t 0:15:37.680 --> 0:15:40.360 state side on the other side of the Atlantic. Can 0:15:40.400 --> 0:15:44.160 you make that cool yet? Yeah, I don't think we're 0:15:44.200 --> 0:15:47.920 quite there, just because Europe has been lagging the US 0:15:48.000 --> 0:15:50.560 in terms of this cycle. But I don't think they're 0:15:50.560 --> 0:15:53.680 far behind either. You know, we're starting to see that catchup. 0:15:53.680 --> 0:15:56.560 We're starting to see the market building the expectation for 0:15:56.600 --> 0:15:59.560 a tighter policy in Europe. So I think they're lagging 0:15:59.640 --> 0:16:02.880 us by don't think you're quite there yet, Cathy. The 0:16:02.960 --> 0:16:07.160 yields that we see are are complete mystery at the 0:16:07.240 --> 0:16:10.560 third quarter, how what does your top end look like? 0:16:11.080 --> 0:16:14.600 How far up do you frame yields could go to? 0:16:16.600 --> 0:16:19.000 So when we're looking at the short end, you know, 0:16:19.040 --> 0:16:22.320 we're still looking at the FED tightening UH fifty basis 0:16:22.320 --> 0:16:25.480 points the next two meetings and probably then switching to 0:16:25.600 --> 0:16:29.360 about the quarter point increases in the fall UH and 0:16:29.440 --> 0:16:31.920 we see them topping out, you know, probably in that 0:16:32.000 --> 0:16:35.280 two and three quarters area. We're a little bit under 0:16:35.360 --> 0:16:37.680 sort of the consensus and what's built into the market. 0:16:37.720 --> 0:16:40.760 When we look out to the tenure, our expectation is 0:16:40.800 --> 0:16:42.480 the upper end is that three to three in a 0:16:42.600 --> 0:16:45.920 quarter area. You know, as we get into a tightening cycle, 0:16:46.080 --> 0:16:49.760 yields converge across the current. We're already seeing a little 0:16:49.800 --> 0:16:52.280 bit of inversion from fives to tens. So we think 0:16:52.280 --> 0:16:54.280 three to three quarters the upper end of what we're 0:16:54.320 --> 0:16:57.240 going to see. Kathy, we're talking this morning about the 0:16:57.240 --> 0:17:00.480 two sided argument within each of these houses at banks 0:17:00.480 --> 0:17:03.040 and beyond of whether we're too gloomy or whether we're 0:17:03.040 --> 0:17:06.520 too optimistic. And the data is coming out strong, does 0:17:06.560 --> 0:17:08.880 this mean that the FED has to go much harder 0:17:08.880 --> 0:17:11.360 that Basically, yes, you could take that three and three 0:17:11.359 --> 0:17:13.280 to quarter percent ten ure yield, but the path to 0:17:13.359 --> 0:17:16.560 get there is one paved by a FED that essentially 0:17:16.840 --> 0:17:21.880 has to end this cycle, has to create a downturn. Yeah, 0:17:22.160 --> 0:17:25.160 it certainly is the way that, Um, you know they're 0:17:25.200 --> 0:17:27.880 talking right now and have to take them seriously. It's 0:17:27.880 --> 0:17:31.120 pretty much across the board, from Daily to Bullard, you're 0:17:31.119 --> 0:17:34.400 hearing the need for tighter policy. And I think that 0:17:35.160 --> 0:17:39.040 this this cycle reminds me of the early eighties. Um, 0:17:39.040 --> 0:17:42.080 you know Tom might remember this, but you know you 0:17:42.200 --> 0:17:45.960 had high inflation, relatively healthy economy, and the idea was 0:17:46.119 --> 0:17:50.919 just to really get that inflation down, and Vulcar at 0:17:50.960 --> 0:17:53.520 the time came in and just jacked up rates until 0:17:53.640 --> 0:17:56.120 we tipped into recession. We had too back to back 0:17:56.280 --> 0:17:59.000 very sharp recessions. So that's kind of the risk I 0:17:59.000 --> 0:18:01.080 think if the FED go is really hard here. But 0:18:01.200 --> 0:18:03.879 that certainly sounds like the intention that they have, Kathy, 0:18:03.920 --> 0:18:07.160 how achievable at least forecasts over the Federal Reserve unemployment 0:18:07.160 --> 0:18:09.680 at three point five percent this year, three point five 0:18:09.680 --> 0:18:12.879 percent next year, three point six percent the year after that. 0:18:13.040 --> 0:18:18.080 How a chief bull is that. I'd say that aspirational um. 0:18:18.160 --> 0:18:23.280 It would be surprising to me if you could have 0:18:23.520 --> 0:18:27.040 the kind of monetary policy we're getting with higher rates 0:18:27.240 --> 0:18:32.000 and QT along with the global tightening cycle, and still 0:18:32.040 --> 0:18:33.960 keep unemployment here at three and a half. Do you 0:18:34.000 --> 0:18:37.119 think they should rename the Summary of Economic Projections Federal 0:18:37.160 --> 0:18:41.320 Reserve aspirations? I think so. You know, they're never going 0:18:41.400 --> 0:18:46.960 to forecast failure, right, so they have to they have 0:18:47.080 --> 0:18:50.080 to forecast, you know, what they hope happens. Kathy, Thank you. 0:18:50.160 --> 0:18:57.440 Kathy Jones had a swap sense for financial research joining 0:18:57.480 --> 0:18:59.800 us right now, Megan Green, Global chief Economist, are Cruel 0:18:59.840 --> 0:19:04.280 Institute and Senior Fellow, Harvard County School, and very importantly DIRR. 0:19:04.359 --> 0:19:08.200 Green is the idea here of using the Queen's English. 0:19:08.320 --> 0:19:11.440 And you do that, Megan with the word awkward, You say, 0:19:11.520 --> 0:19:16.480 are awkward response to inflation on a global basis is 0:19:16.560 --> 0:19:20.440 really interesting? How awkward is the fellow Reserve and Chairman 0:19:20.440 --> 0:19:24.919 Powell right now? Well, the Fed's in a tough spot, 0:19:25.200 --> 0:19:28.720 right you know, we're facing indicators suggesting that growth is 0:19:28.760 --> 0:19:31.720 really slowing. At the same time, inflation is way too 0:19:31.800 --> 0:19:34.879 high by the FED standards, by everyone's standards, and so 0:19:35.000 --> 0:19:37.719 the FED is stuck knowing that a lot of the 0:19:37.840 --> 0:19:40.800 drivers of inflation are our supply side and that the 0:19:40.840 --> 0:19:43.439 FED can't really do much about it. So the Fed's 0:19:43.560 --> 0:19:46.080 having to high grates uh and will high grates to 0:19:46.240 --> 0:19:49.399 neutral very quickly, which is around two and a half percent. 0:19:49.440 --> 0:19:51.480 There's a ways to go before the end of the year. 0:19:52.040 --> 0:19:54.679 And then I think the Fed's really stuck. They're gonna pause, 0:19:55.280 --> 0:19:57.920 recognize that, you know, another two hundred basis points and 0:19:58.000 --> 0:20:00.480 heights is a lot for the economy to orb in 0:20:00.480 --> 0:20:03.320 a short period of time, and see where the data is. 0:20:03.440 --> 0:20:05.960 So I think it's absolute consensus that the FED they'll 0:20:05.960 --> 0:20:08.200 just go straight to neutral and then I think they're 0:20:08.200 --> 0:20:10.600 gonna wait and see as the rest of us will 0:20:10.640 --> 0:20:12.119 have to do as well. I have to say, in 0:20:12.160 --> 0:20:15.120 all of my conversations with investors, there's been a real 0:20:15.160 --> 0:20:19.000 shift in focus away from just talking about inflation to 0:20:19.280 --> 0:20:22.000 just talking about growth. Over the past two weeks. The 0:20:22.040 --> 0:20:26.400 concerns about a recession are are really intense among investors, 0:20:26.400 --> 0:20:28.920 and actually I think premature. I don't think we're going 0:20:28.920 --> 0:20:31.399 into recession in the next twelve months. It's the twelve 0:20:31.400 --> 0:20:33.320 months after that that I'm worried about. Mike, and we 0:20:33.359 --> 0:20:35.919 sent the same thing Overwhelmeny. The focuses on some of 0:20:35.920 --> 0:20:37.840 the output dates, So what did you make of them 0:20:38.119 --> 0:20:41.080 for manufacturing yesterday? Because not exactly in line with what 0:20:41.119 --> 0:20:44.720 we've seen from some of the regional FED indicators. Yeah, 0:20:44.800 --> 0:20:46.960 and this is happening. I had an investor sort of 0:20:47.040 --> 0:20:50.119 ranted me yesterday that all the data is contradictory and 0:20:50.160 --> 0:20:52.640 they don't know what to what signal to read out 0:20:52.640 --> 0:20:54.640 of the noise, and I think we're all feeling that way. 0:20:54.640 --> 0:20:57.400 But I think the I s M data was fairly positive. Actually, 0:20:57.760 --> 0:21:00.720 it surprised me on the upside and suggest that we're 0:21:00.760 --> 0:21:04.040 not carvening towards the recession. Look, you know, the consumer 0:21:04.080 --> 0:21:06.919 accounts for seventy of our growth in the US, and 0:21:07.119 --> 0:21:10.880 consumer balance sheets are looking pretty healthy inaggregate. Of course, 0:21:10.880 --> 0:21:14.160 the bottom quartile by income doesn't look that great. They've 0:21:14.160 --> 0:21:17.320 burned through their cash buffer. But the rest of Americans 0:21:17.359 --> 0:21:20.679 have a big cash cushion. Companies also have a huge 0:21:20.760 --> 0:21:24.080 cash cash position built up, So even as rates go 0:21:24.240 --> 0:21:26.639 up and earning, the risk is all on the downside. 0:21:26.880 --> 0:21:28.879 It's gonna take a while to burn through all of 0:21:28.920 --> 0:21:32.000 that cash before we really start to see individuals and 0:21:32.040 --> 0:21:35.600 companies retrench and and that is what drives us into recession. 0:21:35.760 --> 0:21:38.040 And it's also worth pointing out with the job stated 0:21:38.119 --> 0:21:40.880 coming up on Friday, we've eleven and a half million 0:21:41.040 --> 0:21:44.760 unfilled jobs take up, and unemployment is the best indicator 0:21:44.800 --> 0:21:47.439 of a recession. I just don't see unemployment taking up 0:21:47.480 --> 0:21:50.920 significantly anytime soon, given how many unfilled jobs there are. 0:21:51.119 --> 0:21:53.440 MiG and given all of this, why won't the FED 0:21:53.560 --> 0:21:56.160 be more aggressive than people think? Why do they? Why 0:21:56.160 --> 0:21:59.960 will they potentially be more patient and high rates enough? 0:22:00.240 --> 0:22:03.840 And then pause? Uh, you know, I think that the 0:22:03.920 --> 0:22:07.320 fed knows that their history in terms of engineering a 0:22:07.359 --> 0:22:10.240