WEBVTT - Iran Tensions Firm Up Bullish Picture For Crude 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.720 at Bloomberg dot com. Looking at oil here today, Brent 0:00:21.840 --> 0:00:24.880 crude and w t I down just about one percent today. 0:00:24.880 --> 0:00:28.000 They certainly rallied a little bit off of the geopolitical 0:00:28.040 --> 0:00:30.120 uncertainty over the last several days, but perhaps not as 0:00:30.200 --> 0:00:33.680 much as traders initially would have thought. We're gonna get 0:00:33.680 --> 0:00:36.880 the latest from Wells Fitzpatrick Wells as a managing director 0:00:36.920 --> 0:00:40.360 equity Research covering all things UH expiration and production for 0:00:40.520 --> 0:00:44.160 sun Trust Robinson Humphreys based in Houston, Texas. Well, thanks 0:00:44.200 --> 0:00:46.640 so much for joining us, so give us a sense 0:00:46.680 --> 0:00:49.159 of how your stocks, the E n P stocks kind 0:00:49.159 --> 0:00:51.519 of have been reacting over the last several days to 0:00:51.560 --> 0:00:55.640 what appears to be a little bit more volatile energy space. Yeah, 0:00:55.680 --> 0:00:58.320 thanks thanks for having me on um. As you said, 0:00:58.360 --> 0:01:02.120 prices of jump, but only about two bucks um. You know, 0:01:02.200 --> 0:01:04.880 that's a that's a relatively modest move that tells you 0:01:04.920 --> 0:01:08.480 that the market isn't pricing in any sort of crisis 0:01:08.560 --> 0:01:11.959 related outages. And you know, of course without those crisis 0:01:11.959 --> 0:01:13.720 related outages, we're going to be in this kind of 0:01:13.720 --> 0:01:17.480 fifty five to sixty five range. That being said, what 0:01:17.600 --> 0:01:20.280 the heightened tension does is it firms us up at 0:01:20.319 --> 0:01:23.800 the top end of that range, which is is massively 0:01:23.840 --> 0:01:27.199 important for the group. I mean, the difference between fifty 0:01:27.240 --> 0:01:29.640 five dollars and sixty five dollars on w T I 0:01:29.760 --> 0:01:32.479 is a difference between two times that to EVA don 0:01:32.600 --> 0:01:34.800 one and a half, or the difference between being free 0:01:34.800 --> 0:01:37.640 cash flow neutral and having a seven percent free cash 0:01:37.680 --> 0:01:40.600 flow yield for the group. So, even though we haven't 0:01:40.640 --> 0:01:44.680 seen a big move UH from the recent escalation, it's 0:01:44.720 --> 0:01:46.840 good to have us firm up in in the upper 0:01:46.920 --> 0:01:48.640 end of that range, and that should be able to 0:01:48.680 --> 0:01:52.120 carry on to a pretty positive the names. One interesting 0:01:52.200 --> 0:01:54.760 development over the past week or so has been the 0:01:54.880 --> 0:01:59.440 dramatic outperformance of shale companies versus the major oil producers, 0:01:59.440 --> 0:02:03.400 and I'm wondering whether they are taking advantage of this 0:02:03.560 --> 0:02:07.040 pop in oil prices to extend their credit lines with 0:02:07.120 --> 0:02:09.839 banks to borrow more money, basically to push out any 0:02:09.880 --> 0:02:12.880 kind of financing gaps in order to prevent or immunize 0:02:12.880 --> 0:02:16.200 themselves against a drop in the value of oil. Yeah, no, 0:02:16.360 --> 0:02:19.399 that that that that's a great question, um, and and 0:02:19.520 --> 0:02:23.200 will certainly see it help them in revolver redeterminations in 0:02:23.240 --> 0:02:26.000 the first quarter here. Uh, for a lot of these guys. 0:02:26.000 --> 0:02:28.240 That's going to be very important. You bring up a 0:02:28.240 --> 0:02:31.320 good point because some of the uh, the higher debt 0:02:31.360 --> 0:02:34.200 load gods, I'd point to maybe an extraction, maybe a 0:02:34.240 --> 0:02:37.720 whiting that move from fifty five to or from sixty 0:02:37.800 --> 0:02:40.880 five to sixty five excuse me, takes them from three 0:02:40.880 --> 0:02:44.280 times to two times debt. So it's really it's it's 0:02:44.280 --> 0:02:48.080 a heck of a lifeline, um for these guys. Uh. 0:02:48.120 --> 0:02:50.680 You know, as far as refinancing and the bond market 0:02:50.760 --> 0:02:54.840 still seems a little bit cold on the names. But um, 0:02:55.120 --> 0:02:57.280 you know, of course that can turn pretty quickly if 0:02:57.840 --> 0:03:00.600 if we stay up in this range and companies throw 0:03:00.639 --> 0:03:03.080 off the metrics that should allow them to well. If 0:03:03.200 --> 0:03:05.640 if oil does stay up in this higher range and 0:03:05.680 --> 0:03:07.840 that that helps the balance sheets. Do you expect to 0:03:07.880 --> 0:03:13.000 see a pickup in consolidation activity in your space, or 0:03:13.360 --> 0:03:14.920 do you think a lot of the bigger players might 0:03:14.919 --> 0:03:18.720 sit on the sidelines. It really depends on how the 0:03:18.720 --> 0:03:23.280 stocks respond. Um. I think that given what we've seen 0:03:23.320 --> 0:03:27.519 of consolidation, it's more often I don't want to stay force, 0:03:27.720 --> 0:03:30.600 but you know the company is being consolidated. Don't always 0:03:30.600 --> 0:03:33.120 have the strongest hand. And in so much as a 0:03:33.200 --> 0:03:35.680 higher oil price will strengthen these companies, I mean, just 0:03:35.760 --> 0:03:38.560 looking at the forty five companies that we follow, it 0:03:38.600 --> 0:03:42.720 adds over ten billion dollars in in Eva da UM so, 0:03:42.720 --> 0:03:45.760 so they'll have stronger hands and they'll be able to 0:03:45.760 --> 0:03:47.920 to maybe defend against that a little bit better to 0:03:47.960 --> 0:03:50.160 go and a loan strategy will look a little bit better. 0:03:50.640 --> 0:03:54.920 Uh So, I I wouldn't expect it to to accelerate, 0:03:55.320 --> 0:03:58.880 uh that trend with the major's coming in. And the 0:03:58.920 --> 0:04:00.960 other thing worth pointing out is at this point, the 0:04:01.000 --> 0:04:04.160 majors have a heck a lot of shale, especially in 0:04:04.240 --> 0:04:06.520 the Permium basin, which, as y'all know, is is the 0:04:06.560 --> 0:04:10.120 favorite basin right now. So there's not necessarily a burning 0:04:10.160 --> 0:04:12.840 desire for them to get anything unless it is quasi 0:04:12.920 --> 0:04:15.680 distress and of course this this turns out around a 0:04:15.680 --> 0:04:17.719 little bit. I'm wondering if you could zoom out and 0:04:17.720 --> 0:04:19.560 give us a sense of how long lasting you think 0:04:19.600 --> 0:04:23.400 this popping oil prices uh is and whether we has 0:04:23.440 --> 0:04:25.719 more legs in terms of upside. I mean, do you 0:04:25.760 --> 0:04:29.520 think that, barring some further escalation, oil prices can stay 0:04:29.560 --> 0:04:32.440 where they are? Do you think that the pressure is lower? Frankly, 0:04:34.440 --> 0:04:35.880 I think they could stay where they are, and I 0:04:35.920 --> 0:04:38.840 think that they can go higher. I mean, you know, 0:04:39.400 --> 0:04:41.760 I understand that it's been three or four days since 0:04:41.880 --> 0:04:44.720 since the attack, and and so it seems as though 0:04:44.720 --> 0:04:47.440 there's a calm. But what's worth remembering is that the 0:04:47.480 --> 0:04:51.240 Supreme Leader declared three days of mourning and the likelihood 0:04:51.279 --> 0:04:54.039 of them attacking during that three days was pretty small. 0:04:54.120 --> 0:04:56.320 Now that three days is coming to an end, so 0:04:56.440 --> 0:04:59.479 the next hours are going to be very important for 0:04:59.520 --> 0:05:02.720 the oil markets. Um And and you know, Lauran has 0:05:02.720 --> 0:05:04.880 made it very clear that the military option is still 0:05:04.920 --> 0:05:07.880 on the table. Really, the first time that that would 0:05:07.920 --> 0:05:11.600 have come to fruition is today, So it's worth keeping 0:05:11.600 --> 0:05:14.160 a close eye on if if you want to look 0:05:14.200 --> 0:05:16.640 at it from sort of short, medium and long term 0:05:16.640 --> 0:05:19.440 effects from a short term. We obviously we got the 0:05:19.480 --> 0:05:22.359 popping crewed. Another thing that we got about that people 0:05:22.360 --> 0:05:24.760 don't talk quite as much about is we got a 0:05:24.800 --> 0:05:27.640 premium in the US contract, So the US gained about 0:05:27.680 --> 0:05:29.800 two bucks in the media and aftermath of the attack 0:05:30.000 --> 0:05:34.120 versus Arab light um. And then of course Iran abandoned 0:05:34.160 --> 0:05:37.240 the nuclear deal, so more international pressure could take another 0:05:37.240 --> 0:05:40.400 three hundred thousand barrels out of their exports, which would 0:05:40.400 --> 0:05:44.480 take it to zero. And most importantly, most importantly, and 0:05:44.560 --> 0:05:46.880 I think some people miss this, is that the other 0:05:46.920 --> 0:05:51.520 thing that this does is that if a democrat wins, 0:05:51.839 --> 0:05:55.559 this makes it so much harder to uh to find 0:05:55.560 --> 0:05:58.280 it to taunt with with Iran. And that was the 0:05:58.400 --> 0:06:01.400 nightmare scenario, was that in one you have at the 0:06:01.520 --> 0:06:04.960 tont and one to two million barrels of Iranian crewed 0:06:05.040 --> 0:06:08.400 come back into the market. This makes that vanishing lee 0:06:08.520 --> 0:06:12.560 small chance of happening, and of course underpins a more 0:06:12.600 --> 0:06:15.280 bullish longer term viewing group. Hey, wells, what are the 0:06:15.320 --> 0:06:18.400 companies that you cover doing in terms of production as 0:06:18.440 --> 0:06:21.160 you look forward to they taking advantage of some some higher 0:06:21.200 --> 0:06:24.840 prices here? Well, actually, it's it's it's it's been a 0:06:24.880 --> 0:06:26.840 little bit of a shift um. As you know, the 0:06:26.839 --> 0:06:29.880 sectors touch out of favor to say it, to say 0:06:29.920 --> 0:06:33.239 it nicely, UM, And and the company's have been moving 0:06:33.320 --> 0:06:37.440 towards free cash flow buy backs, etcetera. Which is why 0:06:37.680 --> 0:06:40.719 you know that range of fifty to sixty five. It's 0:06:40.720 --> 0:06:42.159 so important to be in the top end of that 0:06:42.240 --> 0:06:44.560 range when you're throwing off high single digit free cash 0:06:44.560 --> 0:06:47.800 flow yields and you can actually deliver. Uh, you can 0:06:47.839 --> 0:06:51.840 actually deliver on that. But in general, the growth rate 0:06:51.880 --> 0:06:54.920 in the US has really really slowed. UM. I mean 0:06:55.000 --> 0:06:58.719 oil or gas for example. Uh, the e I A 0:06:58.800 --> 0:07:01.920 predicts that gas production will be flat December to December, 0:07:01.960 --> 0:07:05.279 which is is really remarkable coming off the growth that 0:07:05.320 --> 0:07:08.080 we've seen. Oil will be up, but it'll be up 0:07:08.120 --> 0:07:10.200 a lot more modestly. I mean, you're talking December to 0:07:10.320 --> 0:07:13.120 December of something like four dred thousand verses. You know, 0:07:13.240 --> 0:07:16.360 prior years you're north of a million, So you have 0:07:16.440 --> 0:07:19.440 a pretty dramatic pullback. And I think that the incremental 0:07:19.480 --> 0:07:21.520 cash that will come in the door from this higher 0:07:21.560 --> 0:07:25.840 price will likely be used to fuel those those buybacks 0:07:25.960 --> 0:07:29.720 as debt repurchases, um, etcetera. To to really fix the 0:07:29.800 --> 0:07:33.520 financial situation versus putting more holes in the ground. Well, 0:07:33.960 --> 0:07:36.200 Wells Fitzpatrick, thank you so much for being with us. 0:07:36.320 --> 0:07:40.960 Well As Fitzpatrick Managing director focused on energy and research 0:07:41.080 --> 0:07:55.880 and e m P sector generally at sun Trust Robinson Humphrey. 0:07:59.400 --> 0:08:02.840 Joining us now is David Wayner of Bloomberg News. David, 0:08:02.960 --> 0:08:05.120 what was the biggest takeaway that you got from this 0:08:05.200 --> 0:08:10.679 press conference? Yeah? I think I think exactly that he's 0:08:10.840 --> 0:08:15.000 responding to this sort of wingering question that many people have. 0:08:15.120 --> 0:08:17.160 What is the U S strategy in the Middle East? 0:08:17.200 --> 0:08:20.040 What is the U S strategy and Iran specifically? And 0:08:20.080 --> 0:08:22.160 I think what he's trying to say is this, you know, 0:08:22.320 --> 0:08:25.200 this is tethered to a strategy. This is part of 0:08:25.240 --> 0:08:27.520 business as usual for US. You know, we have a 0:08:27.560 --> 0:08:31.560 strategy in Iran which is a maximum pressure campaign, UH 0:08:31.600 --> 0:08:34.800 to put you know, maximum pressure economically on Iran with 0:08:34.920 --> 0:08:38.800 sanctions to respond to any threats that they have against 0:08:38.880 --> 0:08:41.760 US troops or US assets. UM. And that's what we 0:08:41.800 --> 0:08:44.640 did when we took out Solemney. So I think he's 0:08:44.760 --> 0:08:48.440 sort of trying to um to really show that the 0:08:48.720 --> 0:08:52.640 that there is this sort of holistic approach. Interesting, David 0:08:52.720 --> 0:08:56.680 is there any sense within Washington d C the extent 0:08:56.800 --> 0:09:00.120 to which this administration will go uh, if there is 0:09:00.120 --> 0:09:02.480 in fact the next step a retterritory step for the 0:09:02.559 --> 0:09:07.360 U S. If in fact Iran UH does retaliate. Yeah, 0:09:07.400 --> 0:09:10.720 I think we're we're being a lot of different uh, 0:09:10.920 --> 0:09:12.760 you know, a lot of different signals here. And that's 0:09:12.800 --> 0:09:15.400 definitely sort of a billion dollar question here. You know, 0:09:15.480 --> 0:09:18.400 what what would the US do if Iran took action? 0:09:18.480 --> 0:09:22.600 Around is carefully signaling and uh and making it very 0:09:22.600 --> 0:09:25.920 clear that they plan to to retaliate, but within some 0:09:26.000 --> 0:09:29.280 sort of um, you know, within some sort of confines 0:09:29.440 --> 0:09:34.120 of what they call international rules. Right, Um, So we'll 0:09:34.120 --> 0:09:35.680 have to see. But I don't think we have a 0:09:35.720 --> 0:09:38.640 clear signal of what the U S would do. David 0:09:38.640 --> 0:09:40.439 Winner stick with us. We want to bring into the 0:09:40.480 --> 0:09:43.240 conversation Ariel Cohen. He's senior fellow at the Atlantic Council 0:09:43.240 --> 0:09:46.960 and founding principle of International market analysis. Ariel, can you 0:09:46.960 --> 0:09:48.800 give us a sense of whether we are getting a 0:09:48.880 --> 0:09:52.640 clear picture of what the US has planned and how 0:09:52.720 --> 0:09:55.640 far it is willing to go in response to any 0:09:55.640 --> 0:10:01.120 retaliatory measures taken by the Iranian government. Well, I think uh, 0:10:01.360 --> 0:10:06.960 Mr Trump is articulating a very strong stance, probably went 0:10:07.040 --> 0:10:12.600 too far referring to cultural sites, as we witnessed at 0:10:12.640 --> 0:10:18.240 this press conference and from the statement of many American politicians, experts, 0:10:18.240 --> 0:10:25.360 et cetera. People are very uncomfortable with US um committing 0:10:25.520 --> 0:10:28.560 any kind of war crimes, and justifiably so we shouldn't. 0:10:28.800 --> 0:10:31.600 But in terms of Mr. Crump being Mr Trump and 0:10:32.440 --> 0:10:38.520 missing with Iran's Iranians heads UM, I think he probably 0:10:38.760 --> 0:10:42.480 did it, not fully, not being fully cognizant what he's 0:10:42.520 --> 0:10:47.280 getting into. In terms of the actual fight, UH, Iran 0:10:47.559 --> 0:10:51.520 is no match to the United States extentionally and of 0:10:51.559 --> 0:10:55.000 course not unconventional. They don't have nuclear weapons as far 0:10:55.040 --> 0:10:59.840 as we know. But in terms of this indirect warfare, 0:10:59.880 --> 0:11:06.920 the they excel in UM terrorist attacks, UH, subversion, weaponizing 0:11:07.280 --> 0:11:11.280 Shia minorities throughout the Middle East, UH, the creation of 0:11:11.280 --> 0:11:15.160 the so called Iranian Crescent from the Mediterranean to the 0:11:15.160 --> 0:11:18.760 Holy City of Comb in Iran. They're doing all that. 0:11:19.480 --> 0:11:25.360 They are now less one um quarterback, and that was 0:11:25.440 --> 0:11:29.679 Mr Sulimani. General Sulimani UH. He was not a regular 0:11:29.720 --> 0:11:35.920 military He was a paramilitary leader who was engaged deeply 0:11:36.120 --> 0:11:39.840 for decades in terrorist activity and in that respect his 0:11:40.040 --> 0:11:43.120 elimination was justified. So Ariel wanted to get your thoughts 0:11:43.120 --> 0:11:46.160 on a Secretary Pompeio said that Iran's nuclear program is 0:11:46.240 --> 0:11:48.880 more diminished than it was under the j c p 0:11:49.000 --> 0:11:52.880 o A deal that President Trump pulled out of. Is 0:11:52.920 --> 0:11:57.240 that in fact the case from your understanding, I'm not sure, 0:11:57.400 --> 0:12:01.000 and these things are very nicole and you need a 0:12:01.000 --> 0:12:05.680 lot of classified information to really analyze it. If Mr Pompere, 0:12:05.720 --> 0:12:08.880 who has better access to a classified information than I do, 0:12:08.960 --> 0:12:12.559 says so, uh, it would be m a challenge to 0:12:12.640 --> 0:12:16.000 all of us to prove him wrong. Uh. The question 0:12:16.080 --> 0:12:19.040 is how many centri futures they have running now, and 0:12:19.160 --> 0:12:22.400 the fact that they're already the Iranians already made a 0:12:22.440 --> 0:12:27.280 classic Iranian move, we killed soley money. They're moving on 0:12:27.320 --> 0:12:30.320 a different chessboard, and on the nuclear chess board, they're 0:12:30.320 --> 0:12:34.920 saying there are no limitations anymore, uh, in terms of enrichment. 0:12:35.160 --> 0:12:37.839 So that means they can go to enriching all the 0:12:37.880 --> 0:12:42.199 way up to nine that they need of uranium enriched 0:12:42.480 --> 0:12:45.319 in order to produce nuclear weapons. The other question I'm 0:12:45.320 --> 0:12:49.160 asking myself to what extent countries with nuclear expertise who 0:12:49.200 --> 0:12:52.520 are engaged in a strategic competition with US, Russia and 0:12:52.600 --> 0:12:56.360 China are going to help Iran now to develop their 0:12:56.440 --> 0:13:02.040 nuclear the potential nuclear um web and especially the means 0:13:02.160 --> 0:13:04.560 of delivering the rockets in the warheads. I think the 0:13:04.559 --> 0:13:08.400 war warnts are absolutely key. Yes, well, and actually David 0:13:08.440 --> 0:13:10.600 that that brings me to a question that I have, 0:13:10.720 --> 0:13:13.599 which is what is the international response, both from allies 0:13:13.920 --> 0:13:18.000 as well as UH non allies of the United States 0:13:18.040 --> 0:13:21.680 to its actions with respect to Iran. I think you 0:13:21.720 --> 0:13:25.360 know what you're hearing from, you know everyone, both allies 0:13:25.360 --> 0:13:28.679 and U S ravals. There's you know, calls to the 0:13:28.920 --> 0:13:31.360 escalate There's some lot of sort of behind the scenes 0:13:31.520 --> 0:13:35.240 UH discussion going on. A Reef has already said, UH 0:13:35.440 --> 0:13:38.319 confirmed that he's going to be at Davos, although he 0:13:38.360 --> 0:13:41.080 didn't get his visa so far to come to New York. 0:13:41.080 --> 0:13:43.920 He was supposed to be at the United Nations on 0:13:43.960 --> 0:13:46.640 Thursday for a Security Council meeting. So there's a lot 0:13:46.640 --> 0:13:48.520 of back channeling going on, a lot of calls for 0:13:48.640 --> 0:13:53.200 the escalation UM even the sort of you know, the 0:13:53.240 --> 0:13:57.280 regional U S allies such as Israel, Saudi Arabia and 0:13:57.400 --> 0:14:00.080 the U A E. Uh, they're not interested in an 0:14:00.160 --> 0:14:04.520 escalation here. Israel has been relatively quiet. Um. I mean 0:14:04.520 --> 0:14:08.000 they praised the US action, but they're distancing themselves from 0:14:08.280 --> 0:14:13.000 specific strike on Sulamani. So UM, you know, I think 0:14:13.240 --> 0:14:15.800 there's gonna be a lot of uh you know, quite 0:14:15.800 --> 0:14:19.080 a quite a significant attempt to reduce tensions here. And 0:14:19.080 --> 0:14:22.120 I would also note that you know, Iran has generally 0:14:22.160 --> 0:14:25.640 responded this way when something like this happened, rhetorically speaking, 0:14:26.200 --> 0:14:28.680 but in terms of action, Uh, they're going to be 0:14:28.800 --> 0:14:31.440 very careful and calibrated. And I you know, if you 0:14:31.640 --> 0:14:33.880 if you look back to the last time someone really 0:14:33.920 --> 0:14:38.520 senior uh in this apparatus was thinking was was killed 0:14:38.720 --> 0:14:43.560 Imad Mougnia Hasbalah, but he was very close. Uh. It 0:14:43.640 --> 0:14:46.960 actually took maybe you know, a decade. Uh, it took 0:14:47.080 --> 0:14:51.560 years until you saw a reaction. Um. And so it's 0:14:51.560 --> 0:14:54.520 gonna take some time for us to see the repercussions 0:14:54.520 --> 0:14:57.280 of this Aria. What do you think Iran will do 0:14:57.360 --> 0:15:01.840 in terms of retaliation? What are their capabilities? Well, Iran 0:15:01.960 --> 0:15:06.960 demonstrated a totally chilling capability when it knocked out half 0:15:07.560 --> 0:15:13.520 of Saudi oil producing UM infrastructure, including the Abu Kaiks facility, 0:15:13.600 --> 0:15:17.080 which is absolutely crucial. I war gamed a strike on 0:15:17.120 --> 0:15:20.760 Abu Kaik and the Saudi facilities about ten years ago. 0:15:20.920 --> 0:15:25.080 The results were much worse, much more catastrophic that than 0:15:25.120 --> 0:15:29.200 what we found today. Why because of the massive US 0:15:29.240 --> 0:15:34.760 oil producing capacity UH from shale so uh, the Iranians 0:15:34.760 --> 0:15:37.160 are capable of doing a lot of damage to the 0:15:37.200 --> 0:15:42.040 Saudi oil capacity and that may tip the global oil market, 0:15:42.480 --> 0:15:46.320 throwing the prices into a much higher rage. On the 0:15:46.320 --> 0:15:49.000 other hand, people ask me if I think they would 0:15:49.040 --> 0:15:53.760 block uh blockade the strait of hormones, the bottleneck through 0:15:53.760 --> 0:15:57.400 which global oil is moving out of the Persian Gulf 0:15:57.640 --> 0:15:59.840 to the global markets, and I said no, because this 0:16:00.000 --> 0:16:03.160 will be Iran shooting itself, not in the food, but 0:16:03.240 --> 0:16:07.040 in the head, because that would stop Iranian exports. And 0:16:07.200 --> 0:16:09.840 also on the table as the US warning, not the 0:16:09.920 --> 0:16:15.760 fifty two cultural site, but very uh important, very vital 0:16:15.840 --> 0:16:22.520 to Iran um Hard Island Oil terminal that is responsible 0:16:22.560 --> 0:16:25.680 for the majority of Iranian oil exports. If they make 0:16:25.760 --> 0:16:30.040 a big move uh, they're Hard Island Oil Terminal will 0:16:30.080 --> 0:16:34.640 be UH in play and potentially devastated by the US Airport. 0:16:35.120 --> 0:16:36.960 Harry'll Cohen, thank you so much for being with us 0:16:36.960 --> 0:16:39.360 Aero Cone, Senior Fellow at the Atlantic Council and founding 0:16:39.400 --> 0:16:42.800 principle of international market Analysis. Also our thanks to David 0:16:42.840 --> 0:16:46.680 Wayner and Bloomberg International Government Reporter, both commenting on that 0:16:46.760 --> 0:17:07.040 press conference and the US strategy with Iran. Time to 0:17:07.080 --> 0:17:09.960 check in with Bloomberg Opinion, we welcome Jim Bianco, President, 0:17:10.040 --> 0:17:15.440 founder Bianco Research. Uh. He is based in Chicago. Interesting, Uh, 0:17:15.640 --> 0:17:17.919 Jim just wanted to get your thoughts just kind of 0:17:17.920 --> 0:17:21.560 on the last few days the the re emergence, if 0:17:21.560 --> 0:17:24.680 you will, of geopolitical risk coming out of the Mid East. 0:17:24.680 --> 0:17:27.080 How does that kind of fit into kind of how 0:17:27.119 --> 0:17:32.960 you're thinking about the markets for you know, the thing 0:17:33.040 --> 0:17:36.480 about it is everybody's wondering when is the next recession 0:17:36.520 --> 0:17:40.120 going to occur? Because it's been eleven years since we've 0:17:40.160 --> 0:17:42.720 had one, and it's the longest period that we've ever had. 0:17:43.800 --> 0:17:47.120 And I've been arguing that the natural state of an 0:17:47.119 --> 0:17:49.960 economy is to expand it will expand forever and ever, 0:17:50.160 --> 0:17:53.680 but it never does because something comes along and breaks it. 0:17:54.320 --> 0:17:57.640 In the leading cause over the last many decades of 0:17:57.720 --> 0:18:00.719 breaking an economy in the recession has been a spike 0:18:00.880 --> 0:18:04.119 in energy prices. So when you get these events that 0:18:04.200 --> 0:18:07.120 you've had in the Middle East over the last week 0:18:07.240 --> 0:18:10.080 or so, you start to wonder if history is going 0:18:10.160 --> 0:18:12.119 to repeat itself again. Are we going to have a 0:18:12.200 --> 0:18:15.879 spike in energy prices and will that bring down the 0:18:15.920 --> 0:18:18.720 economy like it has so many times before. And I'll 0:18:18.720 --> 0:18:21.800 remind you that in two thousand eight, we did get 0:18:21.800 --> 0:18:24.640 to a hundred and forty seven dollars on West Texas 0:18:24.640 --> 0:18:26.760 Intermediate by June of two thou eight, so there was 0:18:26.840 --> 0:18:30.959 spike of energy prices then as well too. A lot 0:18:31.000 --> 0:18:33.280 of people are expecting that the next move for the 0:18:33.280 --> 0:18:36.320 Federal Reserve will be lower than the Federal cut once 0:18:36.400 --> 0:18:39.359 more this year. That's what's being priced into the rates market. 0:18:39.720 --> 0:18:42.800 I'm wondering, do you think that that is required in 0:18:42.920 --> 0:18:45.280 order to keep the economy going or do you think 0:18:45.320 --> 0:18:48.320 that the FED should cut more or not cut at all? 0:18:49.880 --> 0:18:53.160 I do. I do lean towards the FED cutting um. 0:18:53.200 --> 0:18:55.199 I think that they will cut one more time. And 0:18:55.240 --> 0:18:58.359 if I had to uh put a bias on that, 0:18:58.480 --> 0:18:59.960 I think that the bias would be that they would 0:19:00.280 --> 0:19:03.040 more than once uh. And I think they would probably 0:19:03.119 --> 0:19:05.440 do it in the first half of the year. They 0:19:05.440 --> 0:19:08.399 will definitely once we get into the second half of 0:19:08.400 --> 0:19:11.359 the year, try and sit on their hands because of 0:19:11.400 --> 0:19:14.720 the election. But history shows sometimes they're forced to move 0:19:14.720 --> 0:19:18.680 on election right before elections. Remember two thousand and eight 0:19:18.720 --> 0:19:20.600 when they did some of the most extraordinary things they've 0:19:20.600 --> 0:19:24.200 done in their history literally days before the election. I 0:19:24.280 --> 0:19:26.400 do think though, that if you look at the shape 0:19:26.400 --> 0:19:30.399 of the yield curve, it is back positive, but at 0:19:30.440 --> 0:19:33.960 only twenty six basis points, it is well below its 0:19:34.000 --> 0:19:35.840 long term average, which should be about a hundred and 0:19:35.840 --> 0:19:39.440 twenty basis points, and it is telling us I've always 0:19:39.440 --> 0:19:41.439 looked at the yield curve is being something very simple, 0:19:42.040 --> 0:19:44.159 is that when the yolk curve is inverted, are very flat, 0:19:44.359 --> 0:19:48.280 it's a market signal that maybe the funds rate or 0:19:48.320 --> 0:19:52.280 the policy rate is too high, especially when it's inverted, 0:19:52.320 --> 0:19:54.280 and even when it's very flat. And I would call 0:19:54.359 --> 0:19:57.480 twenty basis points where we are now flat. So I 0:19:57.480 --> 0:20:00.359 think that there's gonna be downward pressure on interest rates 0:20:00.640 --> 0:20:03.160 and the lack of inflation. The thing that the FETE 0:20:03.160 --> 0:20:06.120 has been scratching their head about should be embraced by 0:20:06.160 --> 0:20:09.040 them and say, look, there isn't any there's room for 0:20:09.160 --> 0:20:11.280 us to lower interest rates, and I think they'll eventually 0:20:11.280 --> 0:20:13.560 come to their view. Jim, do we still need to 0:20:13.560 --> 0:20:15.399 worry about that short end of the curve the repo 0:20:15.560 --> 0:20:18.120 market that was obviously much in the news several months ago, 0:20:18.880 --> 0:20:21.880 a little bit less so today. Yeah, No, I definitely 0:20:21.880 --> 0:20:25.760 think we should worry about it. Um it is. It 0:20:25.840 --> 0:20:28.439 has been drugged into submission by the FETE. They've just 0:20:28.480 --> 0:20:32.960 buried it with with supply. They've supplied m repubs to 0:20:33.040 --> 0:20:34.880 the tunes of hundreds of billions of dollars and brought 0:20:34.880 --> 0:20:37.560 another hundreds of billions of dollars of bills to keep 0:20:37.600 --> 0:20:41.280 the market quiet. All Right, it's quiet. It's not a problem. 0:20:41.400 --> 0:20:44.399 It's not an immediate worry today, tomorrow, next week. But 0:20:44.520 --> 0:20:47.040 what is most concerning is I don't hear a plan 0:20:47.160 --> 0:20:49.560 from them on how to fix this. I don't hear 0:20:49.560 --> 0:20:52.359 a plan for them on how to get out of this. 0:20:52.760 --> 0:20:55.800 Other than that they just keep throwing the junkie a 0:20:55.840 --> 0:20:58.080 dime bag every week and saying here, we'll get you 0:20:58.160 --> 0:21:00.240 the next week. We'll get you the next week. That 0:21:00.400 --> 0:21:04.159 being just more repose supply every week. That's not a 0:21:04.160 --> 0:21:07.679 long term fix. It's been four months. It's time for 0:21:07.720 --> 0:21:10.360 them to kind of step up to the plate and say, Okay, 0:21:10.440 --> 0:21:12.960 here's how we're going to fix this problem. I might 0:21:12.960 --> 0:21:15.359 add I think I know why. I think they know that. 0:21:15.440 --> 0:21:19.040 The reason is that they've overregulated the short end of 0:21:19.040 --> 0:21:22.480 the yield curve. It has not been able to come 0:21:22.800 --> 0:21:25.199 to come to grips with that regulation. They need to 0:21:25.240 --> 0:21:28.440 back off that regulation. But they've been getting pressure from 0:21:28.480 --> 0:21:31.560 no less than Liz warrened Sheila Bear former FDI c 0:21:31.800 --> 0:21:35.399 had Alan Bleer, former Flights chairman the FED saying don't 0:21:35.680 --> 0:21:38.560 back off on the regulations. Okay. If you don't do that, 0:21:39.040 --> 0:21:41.360 there's no way to fix this problem. And that's why 0:21:41.359 --> 0:21:43.520 I think they're kind of stuck right now. You've got 0:21:43.560 --> 0:21:46.400 away with words. Jim Bianco throwing the Junkia dime bag. 0:21:46.600 --> 0:21:50.240 I love speaking with you, and Jim Bianco always a pleasure, 0:21:50.320 --> 0:21:54.000 President and founder of Bianco Research and a Bloomberg Opinion contributor. 0:21:54.119 --> 0:21:58.120 Joining us from Chicago and actually interesting, uh to see 0:21:58.320 --> 0:22:01.360 that today the REPO operation operated by the New York 0:22:01.359 --> 0:22:04.119 Federal Reserve was oversubscribed for the first time, and a 0:22:04.160 --> 0:22:08.800 couple of the operations, So showing ongoing demand for this 0:22:08.880 --> 0:22:10.760 liquidity at a time when there are a lot of 0:22:10.840 --> 0:22:28.040 questions about the REPO operations. Well, the fourth most read 0:22:28.080 --> 0:22:32.200 story on the Bloomberg terminal uh this today is about 0:22:32.440 --> 0:22:35.240 the credit card business and gas stations. Apparently the gas 0:22:35.240 --> 0:22:39.080 stations are not prepared to accept the chip reader credit 0:22:39.080 --> 0:22:41.520 cards and apparently that's going to be a big problem. 0:22:41.560 --> 0:22:46.000 Really interesting story here. Jenny Seraine, the reporter on that story, 0:22:46.000 --> 0:22:48.119 finance reporter for Bloomberg News, joins us here on o 0:22:48.119 --> 0:22:51.919 Bloomberg Interactive Broker Studio. Jenny, I didn't even know this 0:22:51.960 --> 0:22:55.840 was a thing. Scope it out force. What's going on? Um? Yeah, 0:22:55.880 --> 0:22:58.640 I think a lot of people maybe haven't been um, 0:22:58.680 --> 0:23:00.240 you know, it's like it's not some thing a lot 0:23:00.240 --> 0:23:02.840 of people pay attention to. But basically five years ago 0:23:02.880 --> 0:23:05.320