WEBVTT - Bloomberg Surveillance TV: April 8, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.720 Terminal and the Bloomberg Business app. FS Investments Chief Economist 0:00:37.760 --> 0:00:40.120 Laura Raim writes in this markets are on edge as 0:00:40.120 --> 0:00:43.280 the upside surprises for inflation keep coming under the herd. 0:00:43.520 --> 0:00:46.680 The mix of inflation remains a problem. Services prices are 0:00:46.720 --> 0:00:49.479 just too high. Does the Fed need to cut rates? No, 0:00:49.640 --> 0:00:51.199 that's going to make from Mark, and she's going to 0:00:51.200 --> 0:00:52.919 screen that for us in a moment. There is no 0:00:53.040 --> 0:00:56.080 urgency for a rake cut. My forecast is for surgic 0:00:56.120 --> 0:00:59.560 cool rape cuts starting possibly Q three or Q four. 0:00:59.680 --> 0:01:02.240 No lower rank joined this right now for more Laray 0:01:02.280 --> 0:01:03.360 you can do that in a moment. I want to 0:01:03.360 --> 0:01:06.319 start with preamsra of JP Morgan Asset Management, who asked 0:01:06.319 --> 0:01:08.679 the question, maybe a bump in the road is the 0:01:08.760 --> 0:01:11.120 new transit tree. Does that resonate with you? 0:01:12.280 --> 0:01:15.160 I think that's well phrased, because it's starting to feel 0:01:15.200 --> 0:01:18.280 a little bit like deja vu. Month by month we're 0:01:18.319 --> 0:01:21.680 pointing it just one factor or one or two small 0:01:21.840 --> 0:01:25.200 one off sub indices that are giving an upside surprise 0:01:25.360 --> 0:01:28.360 and giving us a zero point three percent monthly gain 0:01:28.440 --> 0:01:31.440 instead of zero point two. Well, if you get twelve 0:01:31.520 --> 0:01:33.800 months of those, it adds up to three three point 0:01:33.880 --> 0:01:37.240 two percent inflation, not two percent inflation, and that whack 0:01:37.280 --> 0:01:40.800 a mole sense is come back in just like it did. 0:01:40.920 --> 0:01:44.600 It's not a massive reacceleration story, but it certainly is 0:01:44.640 --> 0:01:48.680 not pushing inflation back into that convenient two percent lane 0:01:48.680 --> 0:01:51.200 that we occupied for so long before the pandemic. 0:01:51.320 --> 0:01:53.800 All let's take it a little taper into that as well. 0:01:53.880 --> 0:01:55.920 The consensus I think on Wall Street at the moment 0:01:55.960 --> 0:01:58.360 is that you can surprise, or rather you can embrace 0:01:58.400 --> 0:02:02.360 this supply side story. Growth is non inflation rate. 0:02:02.240 --> 0:02:02.760 At the moment. 0:02:02.800 --> 0:02:05.280 I think cham and Pow shares that too. Laura, what's 0:02:05.320 --> 0:02:07.560 the biggest challenge to that view right now? 0:02:08.639 --> 0:02:11.480 I think the challenge is it's not just CPI. We're 0:02:11.520 --> 0:02:14.600 starting to see it's been a month and a half 0:02:14.639 --> 0:02:19.640 now of inflation upside surprises from producer prices, from commodity 0:02:19.680 --> 0:02:25.000 prices moving higher. The ISM manufacturing price sub index hit 0:02:25.040 --> 0:02:28.119 the highest in two and a half years. So it's 0:02:28.200 --> 0:02:31.640 not just consumer prices. It's really sort of seeping and 0:02:31.680 --> 0:02:34.760 bubbling up from a lot of different places. And listen, 0:02:34.880 --> 0:02:36.880 services prices are stickier. 0:02:36.919 --> 0:02:40.799 I think that's the issue. And again it's not just rent. 0:02:40.600 --> 0:02:44.400 So you know, you're seeing a nuanced story around inflation. 0:02:44.520 --> 0:02:45.840 I think, unlike the growth. 0:02:45.560 --> 0:02:48.560 Side of the economy, everyone again there's more consensus around 0:02:48.600 --> 0:02:50.480 the fact that we're in good shape. On the inflation, 0:02:50.560 --> 0:02:53.600 there's still a wide range of consensus. And what is 0:02:53.800 --> 0:02:59.480 surprising is Powell, you know, interest in dismissing the latest data. 0:03:00.240 --> 0:03:03.040 Again, there's no urgency to cut rates. So the fact 0:03:03.040 --> 0:03:04.640 that he still seems. 0:03:04.400 --> 0:03:07.440 So intent on that path, I think is causing a 0:03:07.480 --> 0:03:11.440 bunch of us to wonder what the conviction behind the 0:03:11.520 --> 0:03:13.079 rate cut is at this juncture. 0:03:13.280 --> 0:03:15.080 Maybe this is the reason why Laura, you said also 0:03:15.160 --> 0:03:18.240 not higher for longer, but a renormalization of interest rates 0:03:18.280 --> 0:03:21.519 to the nineteen nineties and two thousands. The tenure retests 0:03:21.600 --> 0:03:24.720 five percent at some time this year. What do you 0:03:24.760 --> 0:03:27.160 think is a trigger for that, given that everything we've 0:03:27.160 --> 0:03:29.519 seen so far, we're still quite a bit aways from that. 0:03:31.080 --> 0:03:34.480 We're still aways from it, Lisa, but I think that 0:03:34.560 --> 0:03:39.720 we're on that trajectory. It's the higher inflation numbers, it's 0:03:39.800 --> 0:03:44.000 those very strong growth numbers, it's the productivity numbers that 0:03:44.160 --> 0:03:47.280 look fairly solid, and then I think there's this supply 0:03:47.480 --> 0:03:50.480 side issue in treasuries that's just not going to go 0:03:50.560 --> 0:03:55.400 away no matter what you changed with the mix of funding. 0:03:55.920 --> 0:03:57.280 At the end of the day, if we're not going 0:03:57.320 --> 0:04:01.160 to have a recession, the yield curve should normalize, and 0:04:01.200 --> 0:04:04.600 it's still deeply inverted. I see that as more of 0:04:04.640 --> 0:04:08.240 a twist. Some surgical rate cuts later in the year, 0:04:08.600 --> 0:04:11.400 but long term rates drifting up, and if we have 0:04:11.480 --> 0:04:16.400 a healthy economy with three percent inflation, there's no reason 0:04:16.440 --> 0:04:20.280 why long term registrates shouldn't align with nominal GDP that 0:04:20.320 --> 0:04:23.320 puts you in the five percent range at least. I 0:04:23.360 --> 0:04:25.480 don't think we should be as worried about that as 0:04:25.480 --> 0:04:28.000 we were with the rapid rise and rates that we 0:04:28.040 --> 0:04:29.680 saw in twenty twenty two and twenty three. 0:04:29.839 --> 0:04:31.640 I'm old enough to remember the last time we got 0:04:31.680 --> 0:04:34.160 five percent ten year yields and people were talking about 0:04:34.200 --> 0:04:37.720 something breaking and bank failures and commercial real estate falling. 0:04:37.520 --> 0:04:38.000 Out of bed. 0:04:38.200 --> 0:04:40.279 We're basically taking that off the table now and saying, 0:04:40.279 --> 0:04:42.000 this is an economy that can handle that. 0:04:42.440 --> 0:04:45.000 No, it was no problem that I am. 0:04:44.960 --> 0:04:48.880 Because I think that this time last year when we 0:04:48.960 --> 0:04:52.400 touched five percent, it was the speed at which inflation 0:04:52.839 --> 0:04:54.080 at which interest rates. 0:04:53.839 --> 0:04:54.760 Moved up so fast. 0:04:55.080 --> 0:04:58.279 I make the comparison if somebody from warm weather moves 0:04:58.320 --> 0:05:00.520 to New York in the middle of winter, there's going 0:05:00.600 --> 0:05:03.400 to be a very unpleasant shock, and you're going to 0:05:03.480 --> 0:05:06.480 kind of freeze up. But the second winner, the third winner, 0:05:06.560 --> 0:05:08.480 you kind of get used to it, and you're out 0:05:08.520 --> 0:05:09.960 and about doing everything. 0:05:09.560 --> 0:05:11.160 That you would be doing normally. 0:05:11.600 --> 0:05:14.440 I think that's the right comparison here. The longer that 0:05:14.480 --> 0:05:17.440 we're at these interest rates, the more that will price 0:05:17.560 --> 0:05:21.360 in this into the cost of refinancing, the cost of 0:05:21.400 --> 0:05:24.360 buying a home, and the cost of emina activity. I think, 0:05:24.600 --> 0:05:27.479 you know, all of that will normalize. It was just 0:05:27.560 --> 0:05:29.960 the shock of the speed of the move We're moving 0:05:30.040 --> 0:05:32.200 there gradually now. I don't think it's going to be 0:05:32.200 --> 0:05:34.520 as much of a problem for markets to digest. 0:05:34.720 --> 0:05:36.440 If the economy is fine and well and good, and 0:05:36.520 --> 0:05:38.560 these surgical rate cuts you have about two or three 0:05:38.600 --> 0:05:41.520 priced in, Are you actually prepared to pair them back 0:05:41.560 --> 0:05:42.839 to potentially one or none? 0:05:44.120 --> 0:05:47.520 I am, and I've been sort of, you know, on 0:05:47.560 --> 0:05:51.880 the fence about saying that I don't think two or 0:05:51.880 --> 0:05:54.520 three rate cuts are needed. I just think it's what 0:05:54.560 --> 0:05:56.480 the Fed seems to have. 0:05:56.440 --> 0:05:58.279 Conviction they will deliver. 0:05:58.920 --> 0:06:03.640 I think that look markets today, financial conditions, credit conditions. 0:06:04.200 --> 0:06:07.480 I don't think that we need these rate cuts. At 0:06:07.520 --> 0:06:09.880 the end of the day, you're looking at a world 0:06:09.920 --> 0:06:14.640 with higher interest rates offering US rich suite of alternative 0:06:14.680 --> 0:06:19.080 investments away from traditional equities. I think markets have digested 0:06:19.080 --> 0:06:20.680 these higher interest rates just fine. 0:06:20.920 --> 0:06:22.960 Laura. Can I just say that it's winter eight or 0:06:23.040 --> 0:06:34.839 nine and no, I have not adapted, Laura Rank, Thank you, 0:06:36.040 --> 0:06:38.680 JP Morgan's jack manly saying this. Things are still looking 0:06:38.680 --> 0:06:41.640 pretty good for the equity market. The US economy is 0:06:41.680 --> 0:06:44.800 doing so well that investors should be exuberant. Maybe things 0:06:44.800 --> 0:06:46.800 are a little too rich now, but I think it's 0:06:46.920 --> 0:06:49.720 entirely possible that the market season right the way through 0:06:49.760 --> 0:06:51.960 that Jack come police to say, it's with us around 0:06:51.960 --> 0:06:54.280 the table. Jackie Monet to you Morten, John, why can 0:06:54.400 --> 0:06:56.679 this carry on and why can't it broaden out? 0:06:56.800 --> 0:06:58.960 Well, we're talking about, like you said, Lisa, right, the 0:06:59.000 --> 0:07:01.080 economy doing well for all the right reasons, the rate 0:07:01.160 --> 0:07:04.080 environment changing for all the right reasons. That employment report 0:07:04.120 --> 0:07:07.000 was pretty significant, John, that you had mentioned very strong gains, 0:07:07.120 --> 0:07:09.280 very low unemployment rate, but not the pop and. 0:07:09.240 --> 0:07:10.560 Wages that we would have feared. 0:07:11.040 --> 0:07:12.880 I think this week, to answer that question that you 0:07:12.880 --> 0:07:15.440 guys were talking about earlier, inflation is probably the most 0:07:15.440 --> 0:07:17.640 important thing to be paying attention to. At least that's 0:07:17.640 --> 0:07:19.560 how the market's going to interpret it. I don't think 0:07:19.600 --> 0:07:23.680 any individual inflation report sways the Fed's narrative, but inflation 0:07:23.800 --> 0:07:25.720 will kind of further this story that the economy is 0:07:25.760 --> 0:07:28.800 doing pretty well, because if the pop and inflation comes 0:07:28.840 --> 0:07:30.760 from a pop and energy pricess what we're sort of 0:07:30.760 --> 0:07:33.920 looking at right now that is by definition outside of 0:07:33.960 --> 0:07:34.840 the control. 0:07:34.520 --> 0:07:35.400 Of central banks. 0:07:35.400 --> 0:07:36.840 The FED can't do a whole lot about it, and 0:07:36.840 --> 0:07:38.560 so hopefully they see right through it. 0:07:38.600 --> 0:07:39.400 That's how I'm thinking about. 0:07:39.440 --> 0:07:40.760 So this is not because you don't to talk about 0:07:40.840 --> 0:07:43.360 JP Morgan results on Friday at trevious inflation, We'll talk 0:07:43.360 --> 0:07:46.640 about inflation ZPI. Do you buy into this non inflation 0:07:46.760 --> 0:07:49.600 regrowth story that so many people are embracing, not just 0:07:49.680 --> 0:07:51.520 last Friday, but over the last few months. 0:07:51.800 --> 0:07:53.640 I do buy into it, frankly. I mean, I think 0:07:53.680 --> 0:07:55.680 a lot of what's going on with inflation today can 0:07:55.720 --> 0:07:58.440 be linked very closely to the level of interest rates. 0:07:58.480 --> 0:08:01.240 You slice and dice, and whether you're looking at the 0:08:01.240 --> 0:08:03.760 headline number, you're looking at the core number, you're removing 0:08:03.760 --> 0:08:04.520 the goods equation. 0:08:05.000 --> 0:08:07.120 So much of it has to do with the rate environment. 0:08:07.160 --> 0:08:10.320 It's shelter on the headline side of things, it's automobile 0:08:10.400 --> 0:08:13.119 insurance on the sort of core services side of things. 0:08:13.480 --> 0:08:16.320 Both of these things are going to be direct reflections 0:08:16.360 --> 0:08:18.720 of the interest rate environment. I think we're in this 0:08:18.840 --> 0:08:21.920 really kind of funny, peculiar chicken in the egg type 0:08:21.920 --> 0:08:25.720 situation where you're not going to see meaningful downward pressure 0:08:25.720 --> 0:08:29.240 on inflation until you see meaningful downward pressure on shelter costs. 0:08:29.480 --> 0:08:31.440 And you're not going to see meaningful downward pressure on 0:08:31.480 --> 0:08:34.160 shelter costs until the Fed lowers interest rates. 0:08:34.360 --> 0:08:34.800 Mortgage. 0:08:35.000 --> 0:08:37.560 Mortgages come down to a more reasonable level, and supply 0:08:37.679 --> 0:08:39.680 comes back online because people are willing to step into 0:08:39.720 --> 0:08:42.080 that market. So I see through a little bit of 0:08:42.080 --> 0:08:43.640 that stuff. I don't think the inflation is something to 0:08:43.640 --> 0:08:44.480 be worried about right now. 0:08:44.520 --> 0:08:46.360 Just to underscore what you just said, do you think 0:08:46.480 --> 0:08:49.480 the rates where they are are inherently inflationary? 0:08:50.280 --> 0:08:50.760 I think so. 0:08:51.160 --> 0:08:53.480 I mean, it's so funny because if you think about 0:08:53.480 --> 0:08:55.960 where inflation was two years ago, right we're talking about 0:08:56.000 --> 0:08:59.800 twenty twenty two, we're looking at scarcity issues. We're looking 0:08:59.840 --> 0:09:04.640 at shortages of energy, shortages of food, shortages. 0:09:04.120 --> 0:09:05.880 Of finished goods, all these things. 0:09:05.679 --> 0:09:10.160 Related to Russia, Ukraine, China still embracing zero COVID. We 0:09:10.280 --> 0:09:13.679 crushed inflation from nine to one to three zero in 0:09:13.720 --> 0:09:16.040 a twelve month span, and it had literally nothing to 0:09:16.040 --> 0:09:18.600 do with interest rates, purely to do with supply chain 0:09:18.600 --> 0:09:19.440 issues getting better. 0:09:20.080 --> 0:09:20.320 Now. 0:09:20.440 --> 0:09:23.120 The stuff that's here right now, that's the stickier stuff. 0:09:23.160 --> 0:09:25.520 That's the more complicated stuff. That's the stuff that's tied 0:09:25.679 --> 0:09:28.000 directly to interest rates. So I think the path from 0:09:28.080 --> 0:09:30.840 nine to three easy. The path from three to two 0:09:31.440 --> 0:09:33.440 that's a lot more complicated. And hey, we've seen plenty 0:09:33.440 --> 0:09:35.680 of evidence over the last six, seven, eight months in 0:09:35.720 --> 0:09:36.320 those points. 0:09:36.400 --> 0:09:39.560 So does this leave you buying bonds and buying stocks 0:09:39.600 --> 0:09:41.439 because you think that ultimately the Fed's going to cut 0:09:41.520 --> 0:09:43.560 rates and that's going to be positive for yields since 0:09:43.600 --> 0:09:49.160 it's inherently disinflationary to cut rates because higher rates are inflationary. 0:09:49.440 --> 0:09:50.800 Weird environment, right, Yeah, I. 0:09:52.800 --> 0:09:54.240 Looks like a tongue twister right there. 0:09:54.600 --> 0:09:56.320 You know, when I think about fixed income, I have 0:09:56.360 --> 0:09:58.960 to acknowledge there is a lot of short term uncertainty 0:09:59.000 --> 0:10:00.679 about the direction of interest rates right now. 0:10:00.720 --> 0:10:01.520 We just don't. 0:10:01.320 --> 0:10:04.040 Really know how the data are going to continue to 0:10:04.040 --> 0:10:06.800 play out. The FED elected to not course correct at 0:10:06.800 --> 0:10:09.079 its most recent meeting. They held onto that seventy five 0:10:09.120 --> 0:10:11.920 basis point cut narrative this year, but they may change 0:10:11.960 --> 0:10:13.800 their tune a few months from now. I'm not sure. 0:10:14.200 --> 0:10:18.319 In bonds, I like the upside downside sort of risk 0:10:18.360 --> 0:10:21.120 reward profile there where even if I am a little 0:10:21.120 --> 0:10:23.760 bit too early, and even if yields do back up 0:10:23.800 --> 0:10:25.560 a little bit more, as long as I'm not way 0:10:25.559 --> 0:10:27.400 out on the curve, I don't really have a whole 0:10:27.400 --> 0:10:30.119 lot to be worried about. So from a fixed income perspective. 0:10:30.280 --> 0:10:32.439 It is very much a three to five year kind 0:10:32.440 --> 0:10:34.560 of sweet spot from a duration side of things. And 0:10:34.600 --> 0:10:37.079 I like the higher quality assets. I like the sovereigns, 0:10:37.120 --> 0:10:39.080 I like the higher quality corporates. I'm not really worried 0:10:39.080 --> 0:10:41.960 too much about high yield. On the stock market side 0:10:42.000 --> 0:10:45.360 of things, valuations are clearly stretched right now. I think, 0:10:45.720 --> 0:10:48.199 even if you don't believe in reversion to mean, twenty 0:10:48.200 --> 0:10:50.559 one times forward earnings at an indext level is probably 0:10:50.559 --> 0:10:51.040 a little. 0:10:50.880 --> 0:10:52.080 Bit too high. 0:10:52.160 --> 0:10:54.199 But we are looking at this sort of broadening out 0:10:54.240 --> 0:10:56.600 of the recovery as the earning story gets better for 0:10:56.640 --> 0:10:58.839 the have notts of twenty twenty three, and I think 0:10:58.840 --> 0:11:00.000 that makes me constructive on it. 0:11:00.040 --> 0:11:00.440 What he do? 0:11:00.640 --> 0:11:02.520 What does broadening out mean to you? Some people think 0:11:02.520 --> 0:11:04.360 it's sort of within the S and P five hundred 0:11:04.400 --> 0:11:07.080 away from the dominant seven stocks of last year. Others 0:11:07.120 --> 0:11:09.600 say it's look abroad. Other people it might be going 0:11:09.600 --> 0:11:11.600 from large to small. What does it mean to you? 0:11:11.679 --> 0:11:13.520 I'll tell you of those three, John, it's the first 0:11:13.520 --> 0:11:16.680 one you know. When it comes to the broadening out 0:11:16.720 --> 0:11:17.520 of the recovery. 0:11:17.880 --> 0:11:18.439 It's sort of. 0:11:18.400 --> 0:11:21.000 Overly simplistic, perhaps, but I think it is important that 0:11:21.040 --> 0:11:24.320 investors remember that there are another four hundred and ninety 0:11:24.320 --> 0:11:26.439 three plus names in the S and P five hundred 0:11:26.440 --> 0:11:28.720 that no one's really talking a whole lot about that 0:11:28.960 --> 0:11:31.440 have only just now started to pick up from a 0:11:31.440 --> 0:11:34.679 price perspective, that are trading at reasonable valuations, that are 0:11:34.720 --> 0:11:37.600 punching above their weight class from an earnings contribution perspective. 0:11:37.840 --> 0:11:40.160 And as the interest rate environment gets better this year, 0:11:40.200 --> 0:11:43.600 as inflation continues to sort of normalize this year, all 0:11:43.600 --> 0:11:45.280 of these things are going to be tailwinds for those 0:11:45.640 --> 0:11:48.599 laggards of twenty twenty three. Not a big fan of 0:11:48.640 --> 0:11:50.800 stepping down in the market cap space, I think, particularly 0:11:50.800 --> 0:11:53.440 when you're looking at small cap names, the debt situation 0:11:53.520 --> 0:11:56.680 there is not particularly good. The profitability situation there is 0:11:56.720 --> 0:12:00.960 absolutely abysmal. And then from an international perspective, I like 0:12:01.080 --> 0:12:04.120 the XUS story as long as you are really careful 0:12:04.120 --> 0:12:05.960 about what you're buying out there. You know, if I 0:12:06.040 --> 0:12:08.160 buy the European Index, I'm buying European banks. 0:12:08.200 --> 0:12:09.520 I'm not particularly interested in that. 0:12:09.760 --> 0:12:11.880 If I buy the EM Index, a third of that's 0:12:11.880 --> 0:12:14.400 going to be stayed owned enterprises, I'm not particularly interested 0:12:14.440 --> 0:12:16.120 in that either. So if you're going there You've got 0:12:16.160 --> 0:12:16.960 to be very specific. 0:12:17.000 --> 0:12:19.319 We have a huge upswinging commodities. How do you want 0:12:19.320 --> 0:12:20.800 to potentially expose yourself to that? 0:12:21.679 --> 0:12:25.120 The huge upswinging commodities could result in short term outperformance 0:12:25.120 --> 0:12:27.840 from those commodity producing emerging markets. But that is not 0:12:28.000 --> 0:12:30.600 why I own EM. I don't own EM for the 0:12:30.600 --> 0:12:33.800 commodity play. I own EM for the manufacturing play, for 0:12:33.880 --> 0:12:36.560 the growth of the middle class, the demographics, all that 0:12:36.679 --> 0:12:40.760 leading into consumption, into production of physical goods and even services. 0:12:40.880 --> 0:12:43.280 The commodity story is not what's exciting for me about 0:12:43.280 --> 0:12:44.080 EM long term. 0:12:44.200 --> 0:12:45.760 So if I'm looking for. 0:12:45.640 --> 0:12:48.920 Commodity exposure, I want to clip that coupon and maybe 0:12:48.960 --> 0:12:50.800 get a little bit of price action in there as well. 0:12:51.120 --> 0:12:53.080 I like the higher quality stuff. I even like US 0:12:53.240 --> 0:12:54.000 energy producers. 0:12:54.040 --> 0:12:56.720 I think it's a shorter term play there too, because there's. 0:12:56.480 --> 0:12:57.640 Not a whole lot of capex. 0:12:57.679 --> 0:12:59.559 We're eventually going to have to drill more if we 0:12:59.600 --> 0:13:00.960 want to pump more of this stuff, and I'm not 0:13:01.000 --> 0:13:02.800 quite sure if that's in the cards right now. But 0:13:03.040 --> 0:13:05.560 for where things are at the moment, energy companies are 0:13:05.559 --> 0:13:07.520 making money hand over fist, and they are returning a 0:13:07.520 --> 0:13:09.199 lot of it back to you, the shareholder, So it's 0:13:09.200 --> 0:13:10.320 a it's a pretty good environment. 0:13:10.320 --> 0:13:12.040 Before we leg you go, Jack, he said something that 0:13:12.120 --> 0:13:15.800 was pretty radical, this idea that high interest rates are 0:13:15.840 --> 0:13:17.760 actually inflationary for the economy. 0:13:18.120 --> 0:13:19.200 How do people agree with you? 0:13:20.880 --> 0:13:23.640 I get a lot of questioned looks when I say 0:13:23.640 --> 0:13:25.319 that when when I'm speaking to clients. But I think 0:13:25.320 --> 0:13:27.400 if you if you break it down, it starts to 0:13:27.400 --> 0:13:28.360 make a little bit more sense. 0:13:28.400 --> 0:13:30.800 I mean, in particular on the shelter side of things. 0:13:31.200 --> 0:13:34.240 The Fed has raised interest rates notionally to crush inflation. 0:13:34.320 --> 0:13:36.400 That's the whole point of this thing, right, But by 0:13:36.480 --> 0:13:39.320 raising interest rates, they have made borrowing costs across the 0:13:39.400 --> 0:13:42.320 curve higher, which in turn has made mortgage rates go 0:13:42.440 --> 0:13:45.320 up considerably, which has forced any sort of would be 0:13:45.440 --> 0:13:47.800 home buyer who can no longer afford to purchase a 0:13:47.800 --> 0:13:51.120 home into the rental market. And rental inflation has actually 0:13:51.160 --> 0:13:54.400 stayed quite robust. And rent is what feeds through into CPI. 0:13:54.480 --> 0:13:57.320 It's not home prices, it's rented, and it's owner's equivalent rent. 0:13:57.320 --> 0:13:58.880 And so I think if you kind of tease out 0:13:58.880 --> 0:14:00.520 the connection, they're a little bit it's starts to make 0:14:00.559 --> 0:14:01.000 more sense. 0:14:01.040 --> 0:14:03.280 But first blush. I get a lot of I get 0:14:03.280 --> 0:14:05.120 a lot of hunt. You're sure about that kind of views? 0:14:05.280 --> 0:14:07.200 We heard that from sofas as well from over at 0:14:07.200 --> 0:14:09.559 Oppenheim work. He was talking about the idea that that 0:14:09.679 --> 0:14:12.640 is really the key to bringing home prices lower is 0:14:12.679 --> 0:14:14.240 potentially lowering mortgage rates. 0:14:14.280 --> 0:14:16.000 He was telling us about his ten percent mortgage. 0:14:16.000 --> 0:14:18.800 Wasn't it thousand dollars really bad? 0:14:18.400 --> 0:14:20.440 To Terris Manhattan? 0:14:20.800 --> 0:14:21.160 Poor guy? 0:14:22.160 --> 0:14:22.640 Exactly? 0:14:23.080 --> 0:14:25.400 Seriously, Jack, good to see you. Gant you, sir, Jack 0:14:25.440 --> 0:14:38.240 Manley of JP Morgan Adam, I'm pleased to say it's 0:14:38.280 --> 0:14:41.640 with us. This line that came from Medmore Selen. Ninety 0:14:41.720 --> 0:14:44.680 dollars would be the perfect number if it would be 0:14:44.720 --> 0:14:48.280 stable for a long period. Ellen, you're making an interesting point. 0:14:48.480 --> 0:14:51.080 How difficult it is it for that number to be 0:14:51.120 --> 0:14:52.680 stable for long period? 0:14:53.680 --> 0:14:53.880 Yeah? 0:14:53.880 --> 0:14:56.200 I think it's very difficult to be stable for long 0:14:56.240 --> 0:15:00.320 periods because once that number seems like it's here to stay, 0:15:00.400 --> 0:15:03.360 as opposed to just a spike due to say a 0:15:03.440 --> 0:15:07.440 geopolitical occurrence or an environmental occurrence. 0:15:07.320 --> 0:15:09.200 You've got, you start to. 0:15:09.160 --> 0:15:13.760 Get really really uptight and ants consumer nations. India is 0:15:13.800 --> 0:15:15.840 going to be upset, China's going to be upset, not 0:15:15.960 --> 0:15:18.640 to even mention the Biden administration, which is going to 0:15:18.640 --> 0:15:21.360 be very upset if we see this going on all 0:15:21.360 --> 0:15:25.560 through the summer. That could damage their election chances so 0:15:25.840 --> 0:15:31.440 much because for some reason, American voters really associate gasoline 0:15:31.440 --> 0:15:34.640 prices with the political party that's. 0:15:34.320 --> 0:15:35.360 In power currently. 0:15:35.840 --> 0:15:38.680 There's really no there isn't really a reason for this, 0:15:39.040 --> 0:15:41.880 but it's really a really prevailing. 0:15:41.360 --> 0:15:43.560 Element amongst the American electorate. 0:15:43.640 --> 0:15:48.320 And so if the ninety dollars stays, it really could 0:15:48.400 --> 0:15:51.080 become a problem. And OPEK is going to have a 0:15:51.320 --> 0:15:56.440 very very hard time resisting the pressure both to put 0:15:56.440 --> 0:15:59.480 more barrels on the market, especially Saudi Arabia that's already 0:15:59.520 --> 0:16:04.240 got these extra voluntary cuts beyond what they're required to 0:16:04.320 --> 0:16:05.880 do under their quotas. 0:16:06.000 --> 0:16:07.760 So we're gonna have to at some point. It sounds 0:16:07.760 --> 0:16:10.440 like you're saying sea supply either come from the Saudi's 0:16:10.520 --> 0:16:14.080 or potentially an spr release. At what price level do 0:16:14.160 --> 0:16:15.800 you think the Kingdom steps in. 0:16:16.920 --> 0:16:20.200 I think that they don't sitpit necessarily at a price level, 0:16:20.400 --> 0:16:23.920 but they respond to pressure. I think if they see 0:16:24.160 --> 0:16:27.800 prices going much above ninety dollars a barrow, then I'd 0:16:27.800 --> 0:16:31.320 see them them step in. I think that they are 0:16:31.360 --> 0:16:33.600 also looking at their demand. 0:16:33.600 --> 0:16:35.960 They're going to want to see what kind of orders. 0:16:35.760 --> 0:16:39.360 They're getting from Asia, especially because they don't want to 0:16:39.400 --> 0:16:42.480 see that drop off. And if it looks like their 0:16:42.520 --> 0:16:45.840 oil is getting too expensive for their Asian customers, I 0:16:45.840 --> 0:16:49.200 think could we would see them potentially start to put 0:16:49.200 --> 0:16:52.680 together a price increase at the next OPEC meeting. 0:16:52.760 --> 0:16:55.320 Okay, so let's talk about the potential production increase. 0:16:55.840 --> 0:16:58.560 Let's talk about the potential use, then potential use of 0:16:58.680 --> 0:17:02.400 the SPR well below the highs join the Obama administration, 0:17:02.480 --> 0:17:04.359 but we're still at I think three hundred and sixty 0:17:04.480 --> 0:17:08.800 million barrels that this SPR holds. The Biden administration could 0:17:08.880 --> 0:17:11.679 have a meaningful tap of the SPR before the election. 0:17:11.840 --> 0:17:16.359 No, well, I think that's a really difficult thing to do, because, 0:17:16.400 --> 0:17:19.880 first of all, they've already tapped into the SPR earlier 0:17:19.920 --> 0:17:22.600 and there was a lot of pushback, especially because a 0:17:22.600 --> 0:17:25.119 lot of that oil got exported to China or to 0:17:25.200 --> 0:17:28.600 other countries and it wasn't necessarily used domestically. And the 0:17:28.640 --> 0:17:31.639 purpose of the SPR is not to just lower gasoline 0:17:31.640 --> 0:17:34.520 prices because they happened to be too high, or they 0:17:34.520 --> 0:17:36.879 happen to be too high than what they. 0:17:36.760 --> 0:17:37.679 Prefer for an election. 0:17:38.680 --> 0:17:41.520 The purpose is really to have this in store in 0:17:41.560 --> 0:17:45.240 case there is a geopolitical event that is preventing oil 0:17:45.359 --> 0:17:48.400 from getting to the United States or to other countries, 0:17:48.760 --> 0:17:50.919 or there's a hurricane, for example. 0:17:50.560 --> 0:17:53.280 That could take out production in the Gulf of Mexico. 0:17:53.400 --> 0:17:58.560 We saw SPR releases after there was a significant time 0:17:58.640 --> 0:18:01.080 where production in the Gulf of Mexico is out due 0:18:01.080 --> 0:18:01.720 to a hurricane. 0:18:01.920 --> 0:18:04.119 And if the Biden administration starts. 0:18:03.880 --> 0:18:06.920 Releasing the SPR just because gasleen prices are a little 0:18:06.920 --> 0:18:10.720 too high, then they're setting both a difficult precedent. 0:18:10.440 --> 0:18:12.800 Because then when are they going to refill this. 0:18:12.880 --> 0:18:15.159 They've really got to refill it constantly if they're going 0:18:15.200 --> 0:18:19.640