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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. FS Investments Chief Economist

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Speaker 2: Laura Raim writes in this markets are on edge as

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Speaker 2: the upside surprises for inflation keep coming under the herd.

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Speaker 2: The mix of inflation remains a problem. Services prices are

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Speaker 2: just too high. Does the Fed need to cut rates? No,

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Speaker 2: that's going to make from Mark, and she's going to

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Speaker 2: screen that for us in a moment. There is no

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Speaker 2: urgency for a rake cut. My forecast is for surgic

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Speaker 2: cool rape cuts starting possibly Q three or Q four.

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Speaker 2: No lower rank joined this right now for more Laray

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Speaker 2: you can do that in a moment. I want to

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Speaker 2: start with preamsra of JP Morgan Asset Management, who asked

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Speaker 2: the question, maybe a bump in the road is the

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Speaker 2: new transit tree. Does that resonate with you?

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Speaker 1: I think that's well phrased, because it's starting to feel

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Speaker 1: a little bit like deja vu. Month by month we're

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Speaker 1: pointing it just one factor or one or two small

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Speaker 1: one off sub indices that are giving an upside surprise

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Speaker 1: and giving us a zero point three percent monthly gain

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Speaker 1: instead of zero point two. Well, if you get twelve

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Speaker 1: months of those, it adds up to three three point

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Speaker 1: two percent inflation, not two percent inflation, and that whack

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Speaker 1: a mole sense is come back in just like it did.

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Speaker 1: It's not a massive reacceleration story, but it certainly is

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Speaker 1: not pushing inflation back into that convenient two percent lane

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Speaker 1: that we occupied for so long before the pandemic.

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Speaker 2: All let's take it a little taper into that as well.

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Speaker 2: The consensus I think on Wall Street at the moment

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Speaker 2: is that you can surprise, or rather you can embrace

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Speaker 2: this supply side story. Growth is non inflation rate.

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Speaker 3: At the moment.

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Speaker 2: I think cham and Pow shares that too. Laura, what's

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Speaker 2: the biggest challenge to that view right now?

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Speaker 1: I think the challenge is it's not just CPI. We're

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Speaker 1: starting to see it's been a month and a half

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Speaker 1: now of inflation upside surprises from producer prices, from commodity

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Speaker 1: prices moving higher. The ISM manufacturing price sub index hit

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Speaker 1: the highest in two and a half years. So it's

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Speaker 1: not just consumer prices. It's really sort of seeping and

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Speaker 1: bubbling up from a lot of different places. And listen,

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Speaker 1: services prices are stickier.

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Speaker 4: I think that's the issue. And again it's not just rent.

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Speaker 1: So you know, you're seeing a nuanced story around inflation.

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Speaker 4: I think, unlike the growth.

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Speaker 1: Side of the economy, everyone again there's more consensus around

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Speaker 1: the fact that we're in good shape. On the inflation,

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Speaker 1: there's still a wide range of consensus. And what is

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Speaker 1: surprising is Powell, you know, interest in dismissing the latest data.

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Speaker 4: Again, there's no urgency to cut rates. So the fact

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Speaker 4: that he still seems.

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Speaker 1: So intent on that path, I think is causing a

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Speaker 1: bunch of us to wonder what the conviction behind the

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Speaker 1: rate cut is at this juncture.

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Speaker 5: Maybe this is the reason why Laura, you said also

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Speaker 5: not higher for longer, but a renormalization of interest rates

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Speaker 5: to the nineteen nineties and two thousands. The tenure retests

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Speaker 5: five percent at some time this year. What do you

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Speaker 5: think is a trigger for that, given that everything we've

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Speaker 5: seen so far, we're still quite a bit aways from that.

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Speaker 1: We're still aways from it, Lisa, but I think that

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Speaker 1: we're on that trajectory. It's the higher inflation numbers, it's

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Speaker 1: those very strong growth numbers, it's the productivity numbers that

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Speaker 1: look fairly solid, and then I think there's this supply

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Speaker 1: side issue in treasuries that's just not going to go

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Speaker 1: away no matter what you changed with the mix of funding.

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Speaker 1: At the end of the day, if we're not going

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Speaker 1: to have a recession, the yield curve should normalize, and

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Speaker 1: it's still deeply inverted. I see that as more of

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Speaker 1: a twist. Some surgical rate cuts later in the year,

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Speaker 1: but long term rates drifting up, and if we have

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Speaker 1: a healthy economy with three percent inflation, there's no reason

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Speaker 1: why long term registrates shouldn't align with nominal GDP that

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Speaker 1: puts you in the five percent range at least. I

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Speaker 1: don't think we should be as worried about that as

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Speaker 1: we were with the rapid rise and rates that we

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Speaker 1: saw in twenty twenty two and twenty three.

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Speaker 5: I'm old enough to remember the last time we got

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Speaker 5: five percent ten year yields and people were talking about

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Speaker 5: something breaking and bank failures and commercial real estate falling.

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Speaker 3: Out of bed.

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Speaker 5: We're basically taking that off the table now and saying,

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Speaker 5: this is an economy that can handle that.

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Speaker 4: No, it was no problem that I am.

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Speaker 1: Because I think that this time last year when we

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Speaker 1: touched five percent, it was the speed at which inflation

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Speaker 1: at which interest rates.

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Speaker 4: Moved up so fast.

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Speaker 1: I make the comparison if somebody from warm weather moves

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Speaker 1: to New York in the middle of winter, there's going

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Speaker 1: to be a very unpleasant shock, and you're going to

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Speaker 1: kind of freeze up. But the second winner, the third winner,

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Speaker 1: you kind of get used to it, and you're out

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Speaker 1: and about doing everything.

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Speaker 4: That you would be doing normally.

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Speaker 1: I think that's the right comparison here. The longer that

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Speaker 1: we're at these interest rates, the more that will price

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Speaker 1: in this into the cost of refinancing, the cost of

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Speaker 1: buying a home, and the cost of emina activity. I think,

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Speaker 1: you know, all of that will normalize. It was just

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Speaker 1: the shock of the speed of the move We're moving

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Speaker 1: there gradually now. I don't think it's going to be

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Speaker 1: as much of a problem for markets to digest.

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Speaker 6: If the economy is fine and well and good, and

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Speaker 6: these surgical rate cuts you have about two or three

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Speaker 6: priced in, Are you actually prepared to pair them back

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Speaker 6: to potentially one or none?

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Speaker 1: I am, and I've been sort of, you know, on

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Speaker 1: the fence about saying that I don't think two or

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Speaker 1: three rate cuts are needed. I just think it's what

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Speaker 1: the Fed seems to have.

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Speaker 4: Conviction they will deliver.

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Speaker 1: I think that look markets today, financial conditions, credit conditions.

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Speaker 1: I don't think that we need these rate cuts. At

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Speaker 1: the end of the day, you're looking at a world

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Speaker 1: with higher interest rates offering US rich suite of alternative

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Speaker 1: investments away from traditional equities. I think markets have digested

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Speaker 1: these higher interest rates just fine.

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Speaker 2: Laura. Can I just say that it's winter eight or

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Speaker 2: nine and no, I have not adapted, Laura Rank, Thank you,

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Speaker 2: JP Morgan's jack manly saying this. Things are still looking

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Speaker 2: pretty good for the equity market. The US economy is

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Speaker 2: doing so well that investors should be exuberant. Maybe things

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Speaker 2: are a little too rich now, but I think it's

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Speaker 2: entirely possible that the market season right the way through

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Speaker 2: that Jack come police to say, it's with us around

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Speaker 2: the table. Jackie Monet to you Morten, John, why can

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Speaker 2: this carry on and why can't it broaden out?

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Speaker 7: Well, we're talking about, like you said, Lisa, right, the

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Speaker 7: economy doing well for all the right reasons, the rate

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Speaker 7: environment changing for all the right reasons. That employment report

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Speaker 7: was pretty significant, John, that you had mentioned very strong gains,

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Speaker 7: very low unemployment rate, but not the pop and.

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Speaker 3: Wages that we would have feared.

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Speaker 7: I think this week, to answer that question that you

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Speaker 7: guys were talking about earlier, inflation is probably the most

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Speaker 7: important thing to be paying attention to. At least that's

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Speaker 7: how the market's going to interpret it. I don't think

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Speaker 7: any individual inflation report sways the Fed's narrative, but inflation

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Speaker 7: will kind of further this story that the economy is

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Speaker 7: doing pretty well, because if the pop and inflation comes

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Speaker 7: from a pop and energy pricess what we're sort of

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Speaker 7: looking at right now that is by definition outside of

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Speaker 7: the control.

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Speaker 3: Of central banks.

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Speaker 7: The FED can't do a whole lot about it, and

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Speaker 7: so hopefully they see right through it.

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Speaker 3: That's how I'm thinking about.

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Speaker 2: So this is not because you don't to talk about

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Speaker 2: JP Morgan results on Friday at trevious inflation, We'll talk

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Speaker 2: about inflation ZPI. Do you buy into this non inflation

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Speaker 2: regrowth story that so many people are embracing, not just

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Speaker 2: last Friday, but over the last few months.

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Speaker 7: I do buy into it, frankly. I mean, I think

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Speaker 7: a lot of what's going on with inflation today can

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Speaker 7: be linked very closely to the level of interest rates.

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Speaker 7: You slice and dice, and whether you're looking at the

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Speaker 7: headline number, you're looking at the core number, you're removing

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Speaker 7: the goods equation.

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Speaker 3: So much of it has to do with the rate environment.

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Speaker 7: It's shelter on the headline side of things, it's automobile

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Speaker 7: insurance on the sort of core services side of things.

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Speaker 7: Both of these things are going to be direct reflections

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Speaker 7: of the interest rate environment. I think we're in this

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Speaker 7: really kind of funny, peculiar chicken in the egg type

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Speaker 7: situation where you're not going to see meaningful downward pressure

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Speaker 7: on inflation until you see meaningful downward pressure on shelter costs.

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Speaker 7: And you're not going to see meaningful downward pressure on

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Speaker 7: shelter costs until the Fed lowers interest rates.

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Speaker 3: Mortgage.

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Speaker 7: Mortgages come down to a more reasonable level, and supply

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Speaker 7: comes back online because people are willing to step into

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Speaker 7: that market. So I see through a little bit of

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Speaker 7: that stuff. I don't think the inflation is something to

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Speaker 7: be worried about right now.

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Speaker 5: Just to underscore what you just said, do you think

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Speaker 5: the rates where they are are inherently inflationary?

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Speaker 3: I think so.

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Speaker 7: I mean, it's so funny because if you think about

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Speaker 7: where inflation was two years ago, right we're talking about

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Speaker 7: twenty twenty two, we're looking at scarcity issues. We're looking

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Speaker 7: at shortages of energy, shortages of food, shortages.

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Speaker 3: Of finished goods, all these things.

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Speaker 7: Related to Russia, Ukraine, China still embracing zero COVID. We

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Speaker 7: crushed inflation from nine to one to three zero in

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Speaker 7: a twelve month span, and it had literally nothing to

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Speaker 7: do with interest rates, purely to do with supply chain

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Speaker 7: issues getting better.

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Speaker 5: Now.

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Speaker 7: The stuff that's here right now, that's the stickier stuff.

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Speaker 7: That's the more complicated stuff. That's the stuff that's tied

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Speaker 7: directly to interest rates. So I think the path from

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Speaker 7: nine to three easy. The path from three to two

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Speaker 7: that's a lot more complicated. And hey, we've seen plenty

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Speaker 7: of evidence over the last six, seven, eight months in

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Speaker 7: those points.

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Speaker 5: So does this leave you buying bonds and buying stocks

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Speaker 5: because you think that ultimately the Fed's going to cut

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Speaker 5: rates and that's going to be positive for yields since

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Speaker 5: it's inherently disinflationary to cut rates because higher rates are inflationary.

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Speaker 7: Weird environment, right, Yeah, I.

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Speaker 3: Looks like a tongue twister right there.

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Speaker 7: You know, when I think about fixed income, I have

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Speaker 7: to acknowledge there is a lot of short term uncertainty

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Speaker 7: about the direction of interest rates right now.

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Speaker 3: We just don't.

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Speaker 7: Really know how the data are going to continue to

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Speaker 7: play out. The FED elected to not course correct at

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Speaker 7: its most recent meeting. They held onto that seventy five

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Speaker 7: basis point cut narrative this year, but they may change

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Speaker 7: their tune a few months from now. I'm not sure.

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Speaker 7: In bonds, I like the upside downside sort of risk

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Speaker 7: reward profile there where even if I am a little

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Speaker 7: bit too early, and even if yields do back up

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Speaker 7: a little bit more, as long as I'm not way

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Speaker 7: out on the curve, I don't really have a whole

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Speaker 7: lot to be worried about. So from a fixed income perspective.

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Speaker 7: It is very much a three to five year kind

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Speaker 7: of sweet spot from a duration side of things. And

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Speaker 7: I like the higher quality assets. I like the sovereigns,

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Speaker 7: I like the higher quality corporates. I'm not really worried

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Speaker 7: too much about high yield. On the stock market side

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Speaker 7: of things, valuations are clearly stretched right now. I think,

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Speaker 7: even if you don't believe in reversion to mean, twenty

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Speaker 7: one times forward earnings at an indext level is probably

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Speaker 7: a little.

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Speaker 3: Bit too high.

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Speaker 7: But we are looking at this sort of broadening out

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Speaker 7: of the recovery as the earning story gets better for

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Speaker 7: the have notts of twenty twenty three, and I think

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Speaker 7: that makes me constructive on it.

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Speaker 3: What he do?

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Speaker 2: What does broadening out mean to you? Some people think

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Speaker 2: it's sort of within the S and P five hundred

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Speaker 2: away from the dominant seven stocks of last year. Others

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Speaker 2: say it's look abroad. Other people it might be going

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Speaker 2: from large to small. What does it mean to you?

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Speaker 7: I'll tell you of those three, John, it's the first

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Speaker 7: one you know. When it comes to the broadening out

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Speaker 7: of the recovery.

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Speaker 3: It's sort of.

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Speaker 7: Overly simplistic, perhaps, but I think it is important that

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Speaker 7: investors remember that there are another four hundred and ninety

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Speaker 7: three plus names in the S and P five hundred

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Speaker 7: that no one's really talking a whole lot about that

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Speaker 7: have only just now started to pick up from a

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Speaker 7: price perspective, that are trading at reasonable valuations, that are

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Speaker 7: punching above their weight class from an earnings contribution perspective.

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Speaker 7: And as the interest rate environment gets better this year,

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Speaker 7: as inflation continues to sort of normalize this year, all

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Speaker 7: of these things are going to be tailwinds for those

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Speaker 7: laggards of twenty twenty three. Not a big fan of

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Speaker 7: stepping down in the market cap space, I think, particularly

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Speaker 7: when you're looking at small cap names, the debt situation

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Speaker 7: there is not particularly good. The profitability situation there is

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Speaker 7: absolutely abysmal. And then from an international perspective, I like

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Speaker 7: the XUS story as long as you are really careful

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Speaker 7: about what you're buying out there. You know, if I

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Speaker 7: buy the European Index, I'm buying European banks.

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Speaker 3: I'm not particularly interested in that.

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Speaker 7: If I buy the EM Index, a third of that's

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Speaker 7: going to be stayed owned enterprises, I'm not particularly interested

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Speaker 7: in that either. So if you're going there You've got

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Speaker 7: to be very specific.

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Speaker 6: We have a huge upswinging commodities. How do you want

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Speaker 6: to potentially expose yourself to that?

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Speaker 7: The huge upswinging commodities could result in short term outperformance

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Speaker 7: from those commodity producing emerging markets. But that is not

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Speaker 7: why I own EM. I don't own EM for the

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Speaker 7: commodity play. I own EM for the manufacturing play, for

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Speaker 7: the growth of the middle class, the demographics, all that

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Speaker 7: leading into consumption, into production of physical goods and even services.

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Speaker 7: The commodity story is not what's exciting for me about

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Speaker 7: EM long term.

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Speaker 3: So if I'm looking for.

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Speaker 7: Commodity exposure, I want to clip that coupon and maybe

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Speaker 7: get a little bit of price action in there as well.

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Speaker 3: I like the higher quality stuff. I even like US

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Speaker 3: energy producers.

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Speaker 7: I think it's a shorter term play there too, because there's.

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Speaker 3: Not a whole lot of capex.

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Speaker 7: We're eventually going to have to drill more if we

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Speaker 7: want to pump more of this stuff, and I'm not

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Speaker 7: quite sure if that's in the cards right now. But

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Speaker 7: for where things are at the moment, energy companies are

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Speaker 7: making money hand over fist, and they are returning a

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Speaker 7: lot of it back to you, the shareholder, So it's

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Speaker 7: a it's a pretty good environment.

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Speaker 5: Before we leg you go, Jack, he said something that

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Speaker 5: was pretty radical, this idea that high interest rates are

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Speaker 5: actually inflationary for the economy.

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Speaker 3: How do people agree with you?

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Speaker 7: I get a lot of questioned looks when I say

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Speaker 7: that when when I'm speaking to clients. But I think

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Speaker 7: if you if you break it down, it starts to

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Speaker 7: make a little bit more sense.

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Speaker 3: I mean, in particular on the shelter side of things.

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Speaker 7: The Fed has raised interest rates notionally to crush inflation.

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Speaker 7: That's the whole point of this thing, right, But by

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Speaker 7: raising interest rates, they have made borrowing costs across the

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Speaker 7: curve higher, which in turn has made mortgage rates go

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Speaker 7: up considerably, which has forced any sort of would be

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Speaker 7: home buyer who can no longer afford to purchase a

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Speaker 7: home into the rental market. And rental inflation has actually

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Speaker 7: stayed quite robust. And rent is what feeds through into CPI.

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Speaker 7: It's not home prices, it's rented, and it's owner's equivalent rent.

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Speaker 7: And so I think if you kind of tease out

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Speaker 7: the connection, they're a little bit it's starts to make

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Speaker 7: more sense.

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Speaker 3: But first blush. I get a lot of I get

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Speaker 3: a lot of hunt. You're sure about that kind of views?

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Speaker 5: We heard that from sofas as well from over at

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Speaker 5: Oppenheim work. He was talking about the idea that that

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Speaker 5: is really the key to bringing home prices lower is

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Speaker 5: potentially lowering mortgage rates.

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Speaker 2: He was telling us about his ten percent mortgage.

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Speaker 5: Wasn't it thousand dollars really bad?

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Speaker 2: To Terris Manhattan?

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Speaker 3: Poor guy?

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Speaker 4: Exactly?

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Speaker 2: Seriously, Jack, good to see you. Gant you, sir, Jack

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Speaker 2: Manley of JP Morgan Adam, I'm pleased to say it's

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Speaker 2: with us. This line that came from Medmore Selen. Ninety

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Speaker 2: dollars would be the perfect number if it would be

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Speaker 2: stable for a long period. Ellen, you're making an interesting point.

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Speaker 2: How difficult it is it for that number to be

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Speaker 2: stable for long period?

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Speaker 4: Yeah?

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Speaker 8: I think it's very difficult to be stable for long

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Speaker 8: periods because once that number seems like it's here to stay,

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Speaker 8: as opposed to just a spike due to say a

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Speaker 8: geopolitical occurrence or an environmental occurrence.

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Speaker 4: You've got, you start to.

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Speaker 8: Get really really uptight and ants consumer nations. India is

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Speaker 8: going to be upset, China's going to be upset, not

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Speaker 8: to even mention the Biden administration, which is going to

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Speaker 8: be very upset if we see this going on all

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Speaker 8: through the summer. That could damage their election chances so

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Speaker 8: much because for some reason, American voters really associate gasoline

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Speaker 8: prices with the political party that's.

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Speaker 4: In power currently.

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Speaker 8: There's really no there isn't really a reason for this,

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Speaker 8: but it's really a really prevailing.

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Speaker 4: Element amongst the American electorate.

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Speaker 8: And so if the ninety dollars stays, it really could

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Speaker 8: become a problem. And OPEK is going to have a

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Speaker 8: very very hard time resisting the pressure both to put

355
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Speaker 8: more barrels on the market, especially Saudi Arabia that's already

356
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Speaker 8: got these extra voluntary cuts beyond what they're required to

357
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Speaker 8: do under their quotas.

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Speaker 6: So we're gonna have to at some point. It sounds

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Speaker 6: like you're saying sea supply either come from the Saudi's

360
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Speaker 6: or potentially an spr release. At what price level do

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Speaker 6: you think the Kingdom steps in.

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Speaker 8: I think that they don't sitpit necessarily at a price level,

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Speaker 8: but they respond to pressure. I think if they see

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Speaker 8: prices going much above ninety dollars a barrow, then I'd

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Speaker 8: see them them step in. I think that they are

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Speaker 8: also looking at their demand.

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Speaker 4: They're going to want to see what kind of orders.

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Speaker 8: They're getting from Asia, especially because they don't want to

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Speaker 8: see that drop off. And if it looks like their

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Speaker 8: oil is getting too expensive for their Asian customers, I

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Speaker 8: think could we would see them potentially start to put

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Speaker 8: together a price increase at the next OPEC meeting.

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Speaker 4: Okay, so let's talk about the potential production increase.

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Speaker 6: Let's talk about the potential use, then potential use of

375
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Speaker 6: the SPR well below the highs join the Obama administration,

376
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Speaker 6: but we're still at I think three hundred and sixty

377
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Speaker 6: million barrels that this SPR holds. The Biden administration could

378
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Speaker 6: have a meaningful tap of the SPR before the election.

379
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Speaker 8: No, well, I think that's a really difficult thing to do, because,

380
00:17:16,400 --> 00:17:19,880
Speaker 8: first of all, they've already tapped into the SPR earlier

381
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Speaker 8: and there was a lot of pushback, especially because a

382
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Speaker 8: lot of that oil got exported to China or to

383
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Speaker 8: other countries and it wasn't necessarily used domestically. And the

384
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Speaker 8: purpose of the SPR is not to just lower gasoline

385
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Speaker 8: prices because they happened to be too high, or they

386
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Speaker 8: happen to be too high than what they.

387
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Speaker 4: Prefer for an election.

388
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Speaker 8: The purpose is really to have this in store in

389
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Speaker 8: case there is a geopolitical event that is preventing oil

390
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Speaker 8: from getting to the United States or to other countries,

391
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Speaker 8: or there's a hurricane, for example.

392
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Speaker 4: That could take out production in the Gulf of Mexico.

393
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Speaker 8: We saw SPR releases after there was a significant time

394
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Speaker 8: where production in the Gulf of Mexico is out due

395
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Speaker 8: to a hurricane.

396
00:18:01,920 --> 00:18:04,119
Speaker 4: And if the Biden administration starts.

397
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Speaker 8: Releasing the SPR just because gasleen prices are a little

398
00:18:06,920 --> 00:18:10,720
Speaker 8: too high, then they're setting both a difficult precedent.

399
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Speaker 4: Because then when are they going to refill this.

400
00:18:12,880 --> 00:18:15,159
Speaker 8: They've really got to refill it constantly if they're going

401
00:18:15,200 --> 00:18:19,640
Speaker 8: to be using it. Plus, the summer months and are coming,

402
00:18:20,000 --> 00:18:24,159
Speaker 8: hurricane season is coming, and hurricane season is strongest in

403
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Speaker 8: September and October, which is going to be right before

404
00:18:26,880 --> 00:18:30,760
Speaker 8: the election. They may want to save the SPR basically

405
00:18:30,960 --> 00:18:32,160
Speaker 8: in case they need it.

406
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Speaker 4: For that time.

407
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Speaker 2: Adam, when you are energy exports, what is the appropriate

408
00:18:37,160 --> 00:18:39,919
Speaker 2: level of the SPR, What do you think it should be.

409
00:18:40,960 --> 00:18:44,760
Speaker 4: That's a really good question. I think that that question.

410
00:18:44,560 --> 00:18:48,200
Speaker 8: Is kind of not so relevant because we're technically members

411
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Speaker 8: of the IA, and the IA has a certain in

412
00:18:51,720 --> 00:18:53,760
Speaker 8: order to be a member, you have to maintain a

413
00:18:53,800 --> 00:18:57,439
Speaker 8: certain amount in your SPR because a certain amount of

414
00:18:57,480 --> 00:18:58,400
Speaker 8: your consumption.

415
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Speaker 4: So I think it's it's it's a tough call.

416
00:19:01,440 --> 00:19:04,080
Speaker 8: You really should maintain I think more than you would think,

417
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Speaker 8: because you don't want to screw up all your exports

418
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Speaker 8: by suddenly deciding, oh, hey, we got to halt exports because.

419
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Speaker 4: We need this domestically. You don't want to have to

420
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Speaker 4: do that.

421
00:19:13,359 --> 00:19:16,120
Speaker 8: And so it's a good idea to maintain a good

422
00:19:16,119 --> 00:19:19,280
Speaker 8: amount in your SPR to be used in the event

423
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Speaker 8: of some kind of embargo, stoppage, you know, natural disaster,

424
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Speaker 8: and not to just use it because gasline prices are

425
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Speaker 8: fifty cents per gallon higher than you think.

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Speaker 4: They should be.

427
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Speaker 2: It reminds me of the conversation about the fed eleum.

428
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Speaker 2: We talk about what the FED should do, but it's

429
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Speaker 2: to talk about what it will do. You know, at

430
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Speaker 2: the end of the day, you and I could talk

431
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Speaker 2: about this. We probably agree on the same things regards

432
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Speaker 2: to the SBI and how it should be used. It's

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Speaker 2: how it is being used that I think is more important.

434
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Speaker 2: Here do you anticipate they will be draining that SPI

435
00:19:49,240 --> 00:19:50,080
Speaker 2: going into the election.

436
00:19:51,720 --> 00:19:54,439
Speaker 8: I think that that really depends on where oil prices go.

437
00:19:54,520 --> 00:19:56,960
Speaker 4: I think if OPEC decides to increase.

438
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Speaker 8: Production at the June meeting, there's a lot less like

439
00:20:00,000 --> 00:20:02,879
Speaker 8: flihood that they'll drain the spr They're not going to

440
00:20:02,920 --> 00:20:06,480
Speaker 8: refill it until it's below I think seventy five dollars

441
00:20:06,480 --> 00:20:10,240
Speaker 8: a barrel. But if OPEC does increase production, I don't

442
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Speaker 8: think we're going to see that.

443
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Speaker 4: They'll also probably try to.

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Speaker 8: Push American oil producers to increase production, which is something

445
00:20:16,000 --> 00:20:18,199
Speaker 8: that I don't think they're going to be very receptive to.

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00:20:18,560 --> 00:20:23,119
Speaker 8: Given how much pressure they've had, basically on every other respect,

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00:20:23,200 --> 00:20:25,879
Speaker 8: and how much vilification they've had at the hands of

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00:20:25,880 --> 00:20:28,120
Speaker 8: the Biden administration. They're going to do what they think

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00:20:28,240 --> 00:20:30,960
Speaker 8: is best for their business at this point, regardless of

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00:20:31,000 --> 00:20:32,240
Speaker 8: what the administration says.

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00:20:32,320 --> 00:20:35,840
Speaker 5: They're two points in there, Saudi Arabia's response to oil prices,

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00:20:35,920 --> 00:20:38,640
Speaker 5: especially heading into the election, and US producers. Let's start

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00:20:38,640 --> 00:20:40,639
Speaker 5: with Saudi Arabia. Since you wrote the book on the

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00:20:40,680 --> 00:20:43,040
Speaker 5: Saudi family, how willing are they going to be to

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Speaker 5: help President Biden heading into this election?

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00:20:46,280 --> 00:20:47,159
Speaker 4: That's a good question.

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Speaker 8: I think that they're not going to be that willing,

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Speaker 8: and they're going to want a lot in response. That

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00:20:51,480 --> 00:20:55,320
Speaker 8: doesn't mean that they are totally unwilling, especially if they

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00:20:55,400 --> 00:20:57,520
Speaker 8: think it's a good idea for the market. So if

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00:20:57,560 --> 00:20:59,840
Speaker 8: they're getting pressure from the Biden administration, and they're getting

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00:21:00,240 --> 00:21:03,600
Speaker 8: from a Rock and Create and other producers that want

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00:21:03,640 --> 00:21:07,920
Speaker 8: to increase output, plus they see look ninety dollars a barrel, Well,

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00:21:08,040 --> 00:21:10,040
Speaker 8: if it stays at if it goes above that, that

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00:21:10,200 --> 00:21:12,240
Speaker 8: looks like it could be heading to one hundred, which

466
00:21:12,640 --> 00:21:15,960
Speaker 8: I do think seems unlikely but is absolutely a possibility.

467
00:21:16,280 --> 00:21:19,280
Speaker 8: Then they're definitely going to want to increase production to

468
00:21:19,359 --> 00:21:22,080
Speaker 8: stave that off, because once you hit higher than that,

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00:21:22,119 --> 00:21:25,240
Speaker 8: you see demand destruction, and that's definitely something they don't

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00:21:25,240 --> 00:21:28,199
Speaker 8: want to get. They want to keep their Asian customers happy.

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00:21:28,400 --> 00:21:31,399
Speaker 8: They can also keep the Biden administration happy and get

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00:21:31,640 --> 00:21:36,919
Speaker 8: new defense treaties, new military equipment sold to them. If

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00:21:36,960 --> 00:21:39,760
Speaker 8: they can get concessions on other things that they want,

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00:21:40,000 --> 00:21:42,080
Speaker 8: then I think it would be a win win for

475
00:21:42,200 --> 00:21:46,000
Speaker 8: Saudi Arabia, especially if they can portray it as a

476
00:21:46,080 --> 00:21:48,640
Speaker 8: kind of big pr coup for them.

477
00:21:48,800 --> 00:21:50,920
Speaker 5: When it comes to the domestic picture, how much more

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00:21:50,920 --> 00:21:53,520
Speaker 5: can the US produce? How quickly can they act as

479
00:21:53,560 --> 00:21:56,359
Speaker 5: a swing producer after already pumping thirteen million.

480
00:21:56,119 --> 00:21:56,760
Speaker 3: Barrels a day.

481
00:21:57,880 --> 00:22:00,280
Speaker 8: That's a really good question. I definitely think production could

482
00:22:00,280 --> 00:22:02,920
Speaker 8: be higher. The question is that something that they think

483
00:22:03,119 --> 00:22:05,639
Speaker 8: is a good idea. Now the US is really a

484
00:22:06,040 --> 00:22:09,640
Speaker 8: swing producer because it's oil production is not centralized. We've

485
00:22:09,640 --> 00:22:12,640
Speaker 8: got all sorts of different companies doing what they think

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00:22:12,720 --> 00:22:14,879
Speaker 8: is best. And what they've been saying is best for

487
00:22:14,960 --> 00:22:17,680
Speaker 8: them for a while is not to drill that.

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Speaker 4: Many more wells. Yes, each well, they're getting a.

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Speaker 8: Lot more productivity out of those wells, but they are

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00:22:23,200 --> 00:22:25,960
Speaker 8: not interested in spending a lot of money drilling new wells.

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Speaker 4: Especially if interest rates stay high and.

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Speaker 8: Inflation continues, They're not going to want to spend more money.

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Speaker 4: They may try to get something.

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00:22:34,320 --> 00:22:38,600
Speaker 8: Out of the Biden administration, like approvals for new drilling

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00:22:38,680 --> 00:22:41,760
Speaker 8: in the Gulf of Mexico, for example. It's possible that

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00:22:41,840 --> 00:22:44,960
Speaker 8: they could use that leverage, especially if they think that

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Speaker 8: Biden is going to be re elected.

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Speaker 2: Interesting Ellen, thank you, We've got to leave you there

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Speaker 2: allan weldare if they lancing Council and the author of

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Speaker 2: sambi Ing. This is the Bloomberg Sevenants podcast, bringing you

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00:22:56,800 --> 00:23:00,200
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