1 00:00:10,039 --> 00:00:13,720 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 2 00:00:14,000 --> 00:00:17,560 Speaker 1: with Michael McKee. Daily we bring you insight from the 3 00:00:17,560 --> 00:00:22,760 Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg 4 00:00:22,840 --> 00:00:27,280 Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course 5 00:00:27,760 --> 00:00:33,839 Speaker 1: on the Bloomberg. We have had some bad days, we 6 00:00:33,920 --> 00:00:37,680 Speaker 1: have had some good days. Yesterday started off as a 7 00:00:37,680 --> 00:00:41,040 Speaker 1: bad day and didn't end up that way. UM and 8 00:00:41,120 --> 00:00:44,680 Speaker 1: today who knows. Chris Marangi is a co chief investment 9 00:00:44,680 --> 00:00:49,720 Speaker 1: officer at Gamco. UM what do you do in a 10 00:00:50,000 --> 00:00:54,440 Speaker 1: market like this where everybody is trying to digest the 11 00:00:54,520 --> 00:00:57,760 Speaker 1: news from the United Kingdom, figure out where the United 12 00:00:57,800 --> 00:01:02,120 Speaker 1: States is going? And at this point, UM, it's a 13 00:01:02,240 --> 00:01:07,320 Speaker 1: risk on, risk off every other day it seems alternating mood. Well, yeah, 14 00:01:07,360 --> 00:01:09,400 Speaker 1: I think it's been two weeks and and the market 15 00:01:09,440 --> 00:01:11,800 Speaker 1: has more or less digested the news. It's going to 16 00:01:11,880 --> 00:01:15,240 Speaker 1: be a long road to determine where the UK goes 17 00:01:15,280 --> 00:01:17,840 Speaker 1: from here, what the relationship with Europe is. But in 18 00:01:17,880 --> 00:01:20,800 Speaker 1: the meantime, you focus on on a stock by stock basis. 19 00:01:20,800 --> 00:01:23,039 Speaker 1: You look for individual companies, how have they impacted, what's 20 00:01:23,080 --> 00:01:28,440 Speaker 1: the range of outcomes that can occur based on the 21 00:01:28,520 --> 00:01:32,360 Speaker 1: level of the euro the pound. UM get trading relationships 22 00:01:32,400 --> 00:01:37,080 Speaker 1: with the continent. Is there anything you really want to 23 00:01:37,120 --> 00:01:38,640 Speaker 1: buy right now or do you kind of just want 24 00:01:38,640 --> 00:01:40,400 Speaker 1: to sit back and watch. I talk to Bill Gross 25 00:01:40,440 --> 00:01:43,680 Speaker 1: yesterday and he said, with bonds at these levels, no way. Well, 26 00:01:43,680 --> 00:01:46,120 Speaker 1: certainly equities look on a relative basis a lot more 27 00:01:46,160 --> 00:01:49,040 Speaker 1: attractive than than bonds today. UM, there are good cash 28 00:01:49,080 --> 00:01:51,240 Speaker 1: generating companies around the world that you can buy. Some 29 00:01:51,280 --> 00:01:53,400 Speaker 1: of them are take over candidates, some of them are 30 00:01:53,440 --> 00:01:57,760 Speaker 1: financial engineering candidates, and that's generally where we focus. Uh. 31 00:01:57,800 --> 00:01:59,640 Speaker 1: There's certainly been a focus on the market, on on 32 00:01:59,760 --> 00:02:02,720 Speaker 1: you US centered companies, and that tends to be our bias. 33 00:02:03,240 --> 00:02:05,640 Speaker 1: It's summertime, you know. One of the companies we're buying 34 00:02:05,760 --> 00:02:08,640 Speaker 1: is a baseball team, the Atlanta Braves, which you can 35 00:02:08,639 --> 00:02:12,560 Speaker 1: buy publicly now as Liberty Braves. UM. It's an interesting story. 36 00:02:12,639 --> 00:02:15,280 Speaker 1: John Malone is involved. I think it's undervalued and think 37 00:02:15,320 --> 00:02:17,799 Speaker 1: that that team will continue to compound growths. Been around 38 00:02:17,840 --> 00:02:22,520 Speaker 1: in one Boston Red Stockings. There's a really yeah. And 39 00:02:22,520 --> 00:02:24,800 Speaker 1: then they were the Boston Braves and the Boston Bees, 40 00:02:24,880 --> 00:02:28,200 Speaker 1: and the Braves again they moved to Milwaukee. Interesting, really 41 00:02:28,200 --> 00:02:31,040 Speaker 1: interesting storytime. I read on Away Home last night from Washington, 42 00:02:31,080 --> 00:02:35,400 Speaker 1: d C. About how the Atlanta Braves are trying to 43 00:02:35,480 --> 00:02:39,880 Speaker 1: manipulate parking prices around their new stadium. Well, send folks 44 00:02:39,919 --> 00:02:43,480 Speaker 1: the ESPN to get it is a profit seeking enterprise, 45 00:02:43,720 --> 00:02:46,400 Speaker 1: so they're they're allowed to do that, and we're happy 46 00:02:46,400 --> 00:02:48,799 Speaker 1: that they're doing that. As shareholders. I mortgaged the middle 47 00:02:48,880 --> 00:02:51,200 Speaker 1: child wants to go see the Red Sox played during 48 00:02:51,240 --> 00:02:54,560 Speaker 1: the World Series. That's how much the parking cost. Well, 49 00:02:54,880 --> 00:02:56,320 Speaker 1: you got to leave the kid in the car, he said. 50 00:02:56,320 --> 00:02:57,840 Speaker 1: We can do that. Given where the Braves are in 51 00:02:57,840 --> 00:03:01,679 Speaker 1: the standings. Gives a new meeting to the term buy only. 52 00:03:02,040 --> 00:03:04,840 Speaker 1: I believe it does. Uh. Do you care what Michael 53 00:03:04,919 --> 00:03:07,480 Speaker 1: McKee did with the minutes yesterday? Michael mcke dashed down 54 00:03:07,520 --> 00:03:10,520 Speaker 1: to Washington. Look at the minutes he spoke with William 55 00:03:10,560 --> 00:03:14,240 Speaker 1: Gross of janis joining us tomorrow. Do you care, Chris 56 00:03:14,320 --> 00:03:18,480 Speaker 1: mari Angy about the FED chat now within your investment world? Sure? 57 00:03:18,720 --> 00:03:22,320 Speaker 1: You know. We take these macro variables, including the level 58 00:03:22,320 --> 00:03:24,079 Speaker 1: of interest rates and inflation, and we put them into 59 00:03:24,120 --> 00:03:29,200 Speaker 1: our micro forecasts for individual companies. So it is important. 60 00:03:29,280 --> 00:03:32,400 Speaker 1: I think we don't get very exercised about a twenty 61 00:03:32,400 --> 00:03:35,839 Speaker 1: five basis point move or not. Um, you know which 62 00:03:35,840 --> 00:03:37,680 Speaker 1: I am looking three to five years and we assume 63 00:03:37,720 --> 00:03:39,880 Speaker 1: over that time frame rates will move off the bottom. 64 00:03:40,760 --> 00:03:44,480 Speaker 1: Do you do the markets tell you anything about value 65 00:03:44,520 --> 00:03:50,360 Speaker 1: these days? I mean, given the distortions from the central banks, well, 66 00:03:51,360 --> 00:03:53,920 Speaker 1: you know, I think you see what what what's more 67 00:03:53,920 --> 00:03:57,040 Speaker 1: informative is what strategic buyers are doing. And again an 68 00:03:57,080 --> 00:03:59,720 Speaker 1: example of that this morning with Don paying a very 69 00:03:59,720 --> 00:04:02,800 Speaker 1: big ice for White Wave. Um, you know, we're looking 70 00:04:02,880 --> 00:04:05,840 Speaker 1: at when informed buyers are paying to own a stream 71 00:04:05,880 --> 00:04:08,080 Speaker 1: of cash flows, a growing stream of cashlists in the future. 72 00:04:08,880 --> 00:04:11,800 Speaker 1: I think that's a bit more informative than than with 73 00:04:11,880 --> 00:04:13,920 Speaker 1: the fetist trying to do anyone. I wanted to ask you, 74 00:04:14,000 --> 00:04:17,200 Speaker 1: and I got distracted by the Atlanta braves, which fascinating story. 75 00:04:17,279 --> 00:04:21,080 Speaker 1: But um, you said you were looking at things overseas. 76 00:04:21,920 --> 00:04:26,159 Speaker 1: You have to change money to do that. With the 77 00:04:26,320 --> 00:04:29,560 Speaker 1: volatility we're seeing in currency markets these days, is that 78 00:04:30,520 --> 00:04:32,920 Speaker 1: you know a worthwhile is at a risk. Yeah, So 79 00:04:33,040 --> 00:04:37,640 Speaker 1: we generally we run our portfolios unhedged, so implicitly in 80 00:04:37,680 --> 00:04:41,280 Speaker 1: some cases we are taking currency risk. Um, do you 81 00:04:41,360 --> 00:04:44,680 Speaker 1: buy anything in England like last week. Yeah, when there 82 00:04:44,680 --> 00:04:46,720 Speaker 1: are you know, companies that we've followed for some time 83 00:04:46,800 --> 00:04:49,840 Speaker 1: that we thought were oversold some you know, I think 84 00:04:49,880 --> 00:04:52,360 Speaker 1: there are three categories. We've got companies that become more 85 00:04:52,360 --> 00:04:55,560 Speaker 1: competitive because they've got costs denominated and pounds. You've got 86 00:04:55,560 --> 00:04:59,720 Speaker 1: companies that have large non UK businesses that get a 87 00:04:59,720 --> 00:05:03,120 Speaker 1: trans lasition benefit. And you've got M and A candidates 88 00:05:03,120 --> 00:05:05,479 Speaker 1: that appear just so you know, there's a plaque in 89 00:05:05,480 --> 00:05:08,240 Speaker 1: the back of that chair. One day Mario Gabelly set 90 00:05:08,240 --> 00:05:11,960 Speaker 1: in that chair and he said, Cadbury in like three 91 00:05:12,080 --> 00:05:14,719 Speaker 1: days later it was taken out. Would you like to 92 00:05:14,720 --> 00:05:17,840 Speaker 1: give us a headset what's going to be taken out later? 93 00:05:17,880 --> 00:05:19,440 Speaker 1: I mean, it's interesting. One of the areas that we 94 00:05:19,480 --> 00:05:22,560 Speaker 1: follow is the food group globally. Cadbury was an example 95 00:05:22,600 --> 00:05:26,960 Speaker 1: of that, which became Craft and now Mondale. And you know, 96 00:05:27,000 --> 00:05:29,320 Speaker 1: a few days ago, obviously the news about Mondale buying 97 00:05:29,320 --> 00:05:31,240 Speaker 1: a Great America are attempting to buy a Great American 98 00:05:31,360 --> 00:05:34,000 Speaker 1: icon Hershey foods. Uh. You know, I think you're gonna 99 00:05:34,000 --> 00:05:36,919 Speaker 1: continue to see consolidation and in the food and consumer 100 00:05:36,960 --> 00:05:38,839 Speaker 1: But but to be blunt here, this is a massive 101 00:05:38,960 --> 00:05:42,320 Speaker 1: FDI to the United States. I mean, what I'm seeing 102 00:05:42,400 --> 00:05:46,599 Speaker 1: here is the the gurus of corporate world and their 103 00:05:46,720 --> 00:05:50,679 Speaker 1: consultants are saying that we call those bankers. By the way, 104 00:05:50,880 --> 00:05:55,279 Speaker 1: their consultants are saying, by America, is that the bull 105 00:05:55,320 --> 00:05:58,719 Speaker 1: case for us? Thoughts? Yeah, I don't think that's changed. 106 00:05:58,760 --> 00:06:02,520 Speaker 1: And you know, over two is it enhanced now? Agreed? 107 00:06:02,560 --> 00:06:06,479 Speaker 1: It hasn't changed. Uh, certainly on a relative basis, it 108 00:06:06,560 --> 00:06:10,480 Speaker 1: has um you know, notwithstanding the disruptions, the potential disruptions 109 00:06:10,520 --> 00:06:13,200 Speaker 1: we have in this country with our own elections. I 110 00:06:13,320 --> 00:06:15,720 Speaker 1: fire America. I think it's a pretty safe, safe bet. 111 00:06:15,720 --> 00:06:17,479 Speaker 1: But at some point it does become too expensive and 112 00:06:17,480 --> 00:06:20,239 Speaker 1: there will be opportunities overseas to pick up some bargains 113 00:06:20,400 --> 00:06:23,200 Speaker 1: because it's not going away either. Okay, over there, I am. 114 00:06:23,200 --> 00:06:27,880 Speaker 1: I'm looking up the Atlanta Brave. By the way, you know, 115 00:06:27,920 --> 00:06:30,440 Speaker 1: you can buy European sports franchise. It's called Man You, 116 00:06:30,680 --> 00:06:33,279 Speaker 1: Man You, and they've done better. They've done better. That 117 00:06:33,360 --> 00:06:36,280 Speaker 1: is also a global franchise. They have a huge growing 118 00:06:36,640 --> 00:06:40,039 Speaker 1: fan base in China and the opportunity to monetize that 119 00:06:40,120 --> 00:06:42,680 Speaker 1: fan base in China. Okay, somebody can tweet this in 120 00:06:42,800 --> 00:06:47,599 Speaker 1: or maybe you know, isn't UM Liverpool part of a 121 00:06:47,680 --> 00:06:50,040 Speaker 1: publicly traded group that John Henry owns. I mean, I 122 00:06:50,040 --> 00:06:51,400 Speaker 1: don't know if the Red Sox or in it, but 123 00:06:52,120 --> 00:06:56,040 Speaker 1: Boston Sports I don't know that they may be anyway, 124 00:06:56,080 --> 00:07:00,159 Speaker 1: somebody can tell us that Morgan Stanley's Benjamin Swinburne follows 125 00:07:00,560 --> 00:07:03,080 Speaker 1: the Liberty Braves group. He's the only analyst and he 126 00:07:03,120 --> 00:07:06,440 Speaker 1: has a cell of the group twelvemonth target price of 127 00:07:06,520 --> 00:07:10,720 Speaker 1: fourteen dollars right now selling for four lobbied for public 128 00:07:10,760 --> 00:07:13,800 Speaker 1: shares in the Red Sox, but part of the perspectives 129 00:07:13,840 --> 00:07:16,560 Speaker 1: the red herring was that we would dictate their middle relief. 130 00:07:18,360 --> 00:07:21,280 Speaker 1: Suppose Chris, this is a buy and hold for a while. 131 00:07:21,680 --> 00:07:23,800 Speaker 1: It certainly is. And by the way, they're in Lisi Opportunity. 132 00:07:23,800 --> 00:07:28,400 Speaker 1: One analyst following that stack and Ben Swimmers a terrific analyst. 133 00:07:28,480 --> 00:07:31,240 Speaker 1: But we disagree that we liked it. That's what keeps 134 00:07:31,280 --> 00:07:33,360 Speaker 1: us going. Christma Angy, thank you so much. With Gamco 135 00:07:34,080 --> 00:07:37,720 Speaker 1: on the Atlanta Braves and of course on media. Much 136 00:07:37,760 --> 00:07:51,840 Speaker 1: to talk about. Uh there, well, there is, as we've noted, 137 00:07:51,880 --> 00:07:54,440 Speaker 1: a lot of confusion in the market so the last 138 00:07:54,480 --> 00:07:57,280 Speaker 1: ten days or so about what to think of Brexit 139 00:07:57,320 --> 00:08:01,240 Speaker 1: and what it means for everything. A j rajudition has 140 00:08:01,240 --> 00:08:05,720 Speaker 1: had the um fortunate or unforted job as Barclay's head 141 00:08:05,720 --> 00:08:08,840 Speaker 1: of macro research ship put some numbers on all this, 142 00:08:08,960 --> 00:08:11,440 Speaker 1: and they have just come out with their latest global 143 00:08:11,560 --> 00:08:15,480 Speaker 1: outlook and he joins us, now, a j M. You 144 00:08:15,600 --> 00:08:21,480 Speaker 1: actually do have a number now for the global growth 145 00:08:21,920 --> 00:08:26,320 Speaker 1: for cast and for UK growth in the wake of Brexit. 146 00:08:26,440 --> 00:08:29,240 Speaker 1: What do you what do you see? So, Michael, we 147 00:08:29,280 --> 00:08:32,280 Speaker 1: are not amongst those who think that the UK leaving 148 00:08:32,360 --> 00:08:34,679 Speaker 1: is a trivial thing, and they're having some analysts who 149 00:08:34,679 --> 00:08:37,240 Speaker 1: have come out and said that we think the primary 150 00:08:37,280 --> 00:08:41,840 Speaker 1: transmission mechanism is through uncertainty spilling over into you know, 151 00:08:41,920 --> 00:08:44,000 Speaker 1: a loss of confidence both for the business sector and 152 00:08:44,040 --> 00:08:46,760 Speaker 1: the household sector. And this is a really tangible thing. 153 00:08:46,800 --> 00:08:50,160 Speaker 1: It's not just a hand weaving qualitative soft measure. Businesses 154 00:08:50,160 --> 00:08:53,959 Speaker 1: put off investment decisions, households put off purchasing big ticket items. 155 00:08:54,280 --> 00:08:57,080 Speaker 1: You're already starting to see that play out. It's surely 156 00:08:57,160 --> 00:09:00,880 Speaker 1: days it. But our ballpark numbers are that pre Brexit, 157 00:09:00,960 --> 00:09:03,160 Speaker 1: we were assuming that the UK would remain and at 158 00:09:03,200 --> 00:09:05,680 Speaker 1: that point we forecast one point nine percent growth for 159 00:09:05,720 --> 00:09:09,000 Speaker 1: two thousand seventeen. Now we see a mild contraction of 160 00:09:09,160 --> 00:09:11,480 Speaker 1: point four percent, So it's a two point three percentage 161 00:09:11,520 --> 00:09:14,319 Speaker 1: points swing for next year for the UK, one point 162 00:09:14,440 --> 00:09:18,280 Speaker 1: one percentage point swing for the European Union, and global growth. 163 00:09:18,440 --> 00:09:21,200 Speaker 1: Like you said, we think, well we'll drop about fifty 164 00:09:21,240 --> 00:09:24,320 Speaker 1: basis points to relative to our pre brexit forecast. So 165 00:09:24,360 --> 00:09:27,520 Speaker 1: these are not trivial numbers in the world where the 166 00:09:27,559 --> 00:09:31,760 Speaker 1: global economy has already disappointed for the last several quarters. Well, 167 00:09:31,840 --> 00:09:35,480 Speaker 1: you're fairly certain here the markets are not. What's your 168 00:09:35,520 --> 00:09:39,440 Speaker 1: confidence involved for these kind of numbers. The equities markets, 169 00:09:39,559 --> 00:09:42,320 Speaker 1: and especially in the United States have actually held up 170 00:09:42,480 --> 00:09:44,880 Speaker 1: pretty well, and we think there's a couple of reasons 171 00:09:44,920 --> 00:09:48,360 Speaker 1: for that. The first is the slow moving nature of 172 00:09:48,520 --> 00:09:51,640 Speaker 1: future steps by the United Kingdom. Right, you extend something 173 00:09:51,679 --> 00:09:55,439 Speaker 1: long enough and it does by sometime for broader markets. Remember, 174 00:09:55,920 --> 00:09:58,080 Speaker 1: you know there's now speculation that the UK might not 175 00:09:58,160 --> 00:10:01,559 Speaker 1: trigger the Article fifty until at least Christmas of this year, 176 00:10:01,559 --> 00:10:04,360 Speaker 1: So until then the clock doesn't even start. And number 177 00:10:04,360 --> 00:10:07,720 Speaker 1: two is soothing noises made by central banks. But I 178 00:10:07,760 --> 00:10:11,400 Speaker 1: will mention this even though the equities markets equies investors 179 00:10:11,440 --> 00:10:16,000 Speaker 1: seem relatively sanguine bond investors are screaming their anxiety at 180 00:10:16,000 --> 00:10:18,920 Speaker 1: the top of their lungs. Tenure U s cels have 181 00:10:19,040 --> 00:10:22,160 Speaker 1: rallied about forty basis points from pre Brexit. All Right, 182 00:10:22,600 --> 00:10:25,800 Speaker 1: the Federate Hike is now almost completely priced out into 183 00:10:25,800 --> 00:10:29,040 Speaker 1: the land of two thousand eighteen, even as her officials 184 00:10:29,120 --> 00:10:31,600 Speaker 1: keep insisting that, you know, they want to hide this year. 185 00:10:32,280 --> 00:10:37,160 Speaker 1: And the pound just dropped about or so realty to 186 00:10:37,200 --> 00:10:40,720 Speaker 1: where it was two thus days ago. So I look, 187 00:10:40,720 --> 00:10:43,280 Speaker 1: I don't want to write too many parallels, but and 188 00:10:43,280 --> 00:10:46,920 Speaker 1: and you know, I don't mean to extend this analogy 189 00:10:46,960 --> 00:10:51,480 Speaker 1: any further. But the week that Lehman happened, the equity markets, 190 00:10:51,559 --> 00:10:54,760 Speaker 1: I remember, correctly ended up on the week, you know, 191 00:10:54,800 --> 00:10:57,160 Speaker 1: and then they bottomed out for four months later. We 192 00:10:57,240 --> 00:11:00,079 Speaker 1: have an underweight to equities and they're still over to 193 00:11:00,120 --> 00:11:03,480 Speaker 1: wait us fix income something that's worked out extreme for us. 194 00:11:03,760 --> 00:11:06,040 Speaker 1: You have, you have a sentence a j and your 195 00:11:06,080 --> 00:11:11,840 Speaker 1: report that's incredibly important and it's a double negative. You're 196 00:11:11,840 --> 00:11:17,200 Speaker 1: looking for the least unattractive alternative. Ye boy, that's a 197 00:11:17,240 --> 00:11:20,760 Speaker 1: difficult way to invest, isn't it. It is. It's so 198 00:11:21,120 --> 00:11:24,240 Speaker 1: much easier when you're an advisor telling investors what to do, 199 00:11:24,280 --> 00:11:26,840 Speaker 1: as opposed to actually having to put money to work, 200 00:11:27,240 --> 00:11:30,600 Speaker 1: as my clients do. But you're absolutely right that that 201 00:11:30,720 --> 00:11:33,240 Speaker 1: it is a it is a difficult needle to thread 202 00:11:33,880 --> 00:11:36,880 Speaker 1: US fixed income, right, Tania, trasury is below one forty, 203 00:11:36,960 --> 00:11:41,000 Speaker 1: You really are not attractive by historical context. But whether 204 00:11:41,120 --> 00:11:43,400 Speaker 1: you want to go you know, I mean Japanese models 205 00:11:43,440 --> 00:11:46,000 Speaker 1: are not an asset class that one should invest in anymore. 206 00:11:46,080 --> 00:11:48,600 Speaker 1: Neither is most of the your area. These are large 207 00:11:48,640 --> 00:11:51,560 Speaker 1: sorts of markets that are closing. You know, we're talking 208 00:11:51,640 --> 00:11:55,920 Speaker 1: without a Judicia Barclay's head of macro research. Their new 209 00:11:55,960 --> 00:12:01,000 Speaker 1: Global Outlook slashes growth forecast for the world, for the UK, 210 00:12:01,480 --> 00:12:04,160 Speaker 1: for the Euro Area. But you say in there you 211 00:12:04,240 --> 00:12:08,640 Speaker 1: note that markets are not properly priced for that kind 212 00:12:08,640 --> 00:12:11,440 Speaker 1: of outcome. Are you talking equity markets, Because a lot 213 00:12:11,440 --> 00:12:13,840 Speaker 1: of people would look at the bond markets, would look 214 00:12:13,880 --> 00:12:17,120 Speaker 1: at currency markets and say, yeah, they're they're putting they're 215 00:12:17,160 --> 00:12:20,400 Speaker 1: putting bad news into those markets. I think you could 216 00:12:20,440 --> 00:12:23,319 Speaker 1: argue that the bond markets have, you know, are almost 217 00:12:23,320 --> 00:12:26,200 Speaker 1: at levels where it's difficult to justify evaluations no matter 218 00:12:26,240 --> 00:12:29,840 Speaker 1: what the economic outlook, right, especially outside the US, but 219 00:12:29,920 --> 00:12:33,760 Speaker 1: in the US, we think they're largely correctly priced. But 220 00:12:33,840 --> 00:12:38,240 Speaker 1: equities markets, we think are still more optimistics, still take 221 00:12:38,280 --> 00:12:40,000 Speaker 1: a more sang you in the view of the world 222 00:12:40,080 --> 00:12:44,640 Speaker 1: than we do. That they're not prized for downside risks potentially, 223 00:12:44,760 --> 00:12:48,160 Speaker 1: especially you know, further downside risks coming from the Euro Area. 224 00:12:48,200 --> 00:12:51,839 Speaker 1: In our opinion, what would be proper here, I mean, 225 00:12:51,840 --> 00:12:54,120 Speaker 1: how much would you have to cut? Look, so, the 226 00:12:54,160 --> 00:12:56,199 Speaker 1: single biggest thing that I worry about for the lot 227 00:12:56,320 --> 00:13:00,480 Speaker 1: next nine to eighteen months is the prospect of another 228 00:13:00,640 --> 00:13:03,360 Speaker 1: country leaving the euro Zone, but in this case not 229 00:13:03,480 --> 00:13:06,280 Speaker 1: leaving the European Union. It would be a country leaving 230 00:13:06,280 --> 00:13:09,000 Speaker 1: the European monetary Union. Right, It's one thing for a 231 00:13:09,000 --> 00:13:11,080 Speaker 1: country to leave the European Union if it's not part 232 00:13:11,080 --> 00:13:12,839 Speaker 1: of a currency union, which is the case of the 233 00:13:12,920 --> 00:13:15,400 Speaker 1: United Kingdom. It's a big deal, but a much bigger 234 00:13:15,400 --> 00:13:19,520 Speaker 1: deal would be if if markets took seriously the probability 235 00:13:19,640 --> 00:13:22,960 Speaker 1: of the Netherlands or you know, any other country that 236 00:13:23,000 --> 00:13:27,080 Speaker 1: shares the Euro going in the direction of its own referendum. 237 00:13:27,480 --> 00:13:30,280 Speaker 1: That is the reason why this the UK leaving is 238 00:13:30,360 --> 00:13:32,720 Speaker 1: as big a deal as it is for the European Union. 239 00:13:32,760 --> 00:13:34,800 Speaker 1: And that's that that I think, I mean, I don't 240 00:13:34,800 --> 00:13:36,280 Speaker 1: know how to price that that I think would be 241 00:13:36,280 --> 00:13:42,080 Speaker 1: at you. You touch a thing that Michael and I 242 00:13:42,120 --> 00:13:45,080 Speaker 1: have had, which is the idea of you can talk 243 00:13:45,120 --> 00:13:48,600 Speaker 1: all you want about reflation, which I believe means yields 244 00:13:48,640 --> 00:13:54,400 Speaker 1: higher bond prices lower people take price losses great, But 245 00:13:54,720 --> 00:13:58,600 Speaker 1: doing reflation is harder than talking about it. Do you 246 00:13:58,679 --> 00:14:04,600 Speaker 1: have an optimism that five or six major bond areas US, Your, Japan? 247 00:14:04,880 --> 00:14:08,280 Speaker 1: Do you have any optimism in reflation? So the one 248 00:14:08,320 --> 00:14:12,880 Speaker 1: place where there is how where I'm least pessimistic, would 249 00:14:12,920 --> 00:14:16,600 Speaker 1: be the United States, right where and there has been 250 00:14:16,640 --> 00:14:19,960 Speaker 1: a gradual recovery in actual inflation numbers of the last 251 00:14:20,000 --> 00:14:22,480 Speaker 1: few months. It does seem like the US labor markets 252 00:14:22,480 --> 00:14:25,320 Speaker 1: are at a point where wage growth should start to 253 00:14:25,360 --> 00:14:28,360 Speaker 1: pick up quite significantly, right except for you know, except 254 00:14:28,360 --> 00:14:31,080 Speaker 1: that has been interrupted by week per old reports over 255 00:14:31,120 --> 00:14:33,440 Speaker 1: the last two or three months. The euro idea in Japan, 256 00:14:33,560 --> 00:14:36,760 Speaker 1: for example, it's harder to to be optimistic. The one 257 00:14:36,760 --> 00:14:40,160 Speaker 1: thing that we are learning, Tom is that central banks 258 00:14:40,160 --> 00:14:44,280 Speaker 1: can proper financial asset prices for an extended periods of time, 259 00:14:44,600 --> 00:14:48,680 Speaker 1: but that really doesn't always lead to credit expansion, which 260 00:14:48,720 --> 00:14:51,520 Speaker 1: is the ultimate end goal, right that that hasn't happened 261 00:14:51,520 --> 00:14:53,880 Speaker 1: in the in the in Japan, for example, and it's 262 00:14:53,880 --> 00:14:56,280 Speaker 1: happened far less than people would like in other parts 263 00:14:56,280 --> 00:14:58,960 Speaker 1: of the world. That is exactly what Bill Grosser's arguing 264 00:14:59,000 --> 00:15:02,760 Speaker 1: in his latest in Investor newsletter out yesterday, that we 265 00:15:02,760 --> 00:15:07,200 Speaker 1: were seeing nine plus credit growth UM a couple of 266 00:15:07,200 --> 00:15:09,280 Speaker 1: decades ago. Now we're down to three percent and it's 267 00:15:09,280 --> 00:15:13,720 Speaker 1: not enough to power the economy, global economy forward. I 268 00:15:13,760 --> 00:15:19,800 Speaker 1: think that's absolutely true. Honestly. The other prong that central 269 00:15:19,800 --> 00:15:24,600 Speaker 1: banks have used right is extremely low or negative interest rates, 270 00:15:24,680 --> 00:15:27,680 Speaker 1: and there are some signs that even those might no 271 00:15:27,760 --> 00:15:30,960 Speaker 1: longer be asked effective. Clearly, the markets don't like negative 272 00:15:30,960 --> 00:15:34,240 Speaker 1: interest rates. You've seen just completely, you know, collapse in 273 00:15:34,680 --> 00:15:38,640 Speaker 1: in valuation for financial sectors in both Europe and Japan 274 00:15:38,800 --> 00:15:42,120 Speaker 1: once no one's not introduced. So I think we need 275 00:15:42,160 --> 00:15:44,560 Speaker 1: cliscal health for the global economy as a whole. But 276 00:15:44,640 --> 00:15:47,720 Speaker 1: for that you need political will, and that will only 277 00:15:47,760 --> 00:15:50,240 Speaker 1: happen once to discuss it are lower than they are 278 00:15:50,360 --> 00:15:53,880 Speaker 1: right now, we believe. But here's an example, then, folks 279 00:15:53,880 --> 00:15:55,840 Speaker 1: today is buying soy milk. Mike, have you ever had 280 00:15:55,880 --> 00:15:59,360 Speaker 1: soy milk. Yep, you've had it? Yeah? Do you like it? 281 00:16:00,160 --> 00:16:03,080 Speaker 1: Particularly a j if you had soy milk? I have not, 282 00:16:03,240 --> 00:16:06,480 Speaker 1: thank you, Okay, I haven't either. It's in the refrigerator 283 00:16:06,520 --> 00:16:10,120 Speaker 1: on the door, and I'm like, what is this? Anyways? 284 00:16:10,720 --> 00:16:16,800 Speaker 1: Who are exactly nine year The known paper in euros 285 00:16:16,960 --> 00:16:21,320 Speaker 1: has a coupon of one in eight percent, trading at 286 00:16:21,320 --> 00:16:25,240 Speaker 1: a premium to yield something in the vicinity of zero 287 00:16:25,360 --> 00:16:29,400 Speaker 1: point five eight percent for nine years. Would you explain 288 00:16:29,640 --> 00:16:34,080 Speaker 1: to unsophisticates like me how an insurance company that has 289 00:16:34,200 --> 00:16:38,680 Speaker 1: my retirement plan can make their actuarial assumption. I have 290 00:16:38,720 --> 00:16:41,400 Speaker 1: no idea right now how they do think? That's the 291 00:16:41,480 --> 00:16:44,840 Speaker 1: simple answer that they cannot. They have to. You know, 292 00:16:45,200 --> 00:16:49,400 Speaker 1: the bond markets are largely closed or should be closed, 293 00:16:49,480 --> 00:16:52,120 Speaker 1: right and companies should not be investing in this kind 294 00:16:52,120 --> 00:16:55,520 Speaker 1: of paper. But this is for such large parts of 295 00:16:55,560 --> 00:16:58,440 Speaker 1: the sixth income market that then they end up having 296 00:16:58,440 --> 00:17:01,840 Speaker 1: to pile into equity. You know, started going to property 297 00:17:01,880 --> 00:17:04,879 Speaker 1: casualty companies in the United Kingdom where they're enjoying your 298 00:17:04,920 --> 00:17:08,960 Speaker 1: liquidity in a se haircut. Right now, where is our 299 00:17:09,080 --> 00:17:12,800 Speaker 1: serious money? I mean, is everybody in cash? See the 300 00:17:12,800 --> 00:17:15,120 Speaker 1: thing is in large parts of the world you cannot 301 00:17:15,160 --> 00:17:18,680 Speaker 1: be in cash because cash is not zero, right for individus, 302 00:17:18,680 --> 00:17:21,760 Speaker 1: for detail it is. For institutions it is not. So 303 00:17:22,320 --> 00:17:25,000 Speaker 1: you know, that is why you end up having extreme valuations. 304 00:17:25,080 --> 00:17:26,919 Speaker 1: That is, that is in part how you end up 305 00:17:26,920 --> 00:17:30,000 Speaker 1: having high in the US returned ten percent in the 306 00:17:30,040 --> 00:17:34,119 Speaker 1: first six months of the year. Asset prices everywhere, in 307 00:17:34,200 --> 00:17:37,800 Speaker 1: fixed income, in equities everywhere are pumped up to levels 308 00:17:37,840 --> 00:17:42,119 Speaker 1: that are not justified by by the economics. But okay, 309 00:17:42,280 --> 00:17:45,800 Speaker 1: until something gives you know, we're not going to see 310 00:17:46,080 --> 00:17:48,440 Speaker 1: a way A J. Rogert XS with you and Michael 311 00:17:48,440 --> 00:17:54,040 Speaker 1: Gavin at Barclays, does this unwind with smooth glide pass 312 00:17:54,480 --> 00:18:00,280 Speaker 1: that our listeners can understand, observe and react to. Or 313 00:18:00,359 --> 00:18:04,200 Speaker 1: by definition, there's this impossibility in bonds unwind with a 314 00:18:04,320 --> 00:18:08,640 Speaker 1: jump condition of brutal moves in brutal results. I think 315 00:18:08,720 --> 00:18:11,560 Speaker 1: when it does unwind, if and when it does unwind 316 00:18:11,680 --> 00:18:15,119 Speaker 1: it almost by I don't see how it doesn't end 317 00:18:15,200 --> 00:18:19,600 Speaker 1: up being extremely painful for a very large swath of 318 00:18:19,640 --> 00:18:24,440 Speaker 1: the investing population, which you know, there's almost a little 319 00:18:24,480 --> 00:18:26,439 Speaker 1: bit of a catch twenty two that in turn spills 320 00:18:26,440 --> 00:18:29,880 Speaker 1: over into the broader financial markets and then bonds get 321 00:18:29,920 --> 00:18:32,200 Speaker 1: a bit back, right. So this this is just going 322 00:18:32,240 --> 00:18:34,840 Speaker 1: to be very, very messy, but that is something that 323 00:18:34,920 --> 00:18:36,399 Speaker 1: I don't think we'll have to deal with for the 324 00:18:36,440 --> 00:18:39,040 Speaker 1: next few quarters. When it happens, will be very painful. 325 00:18:39,400 --> 00:18:44,640 Speaker 1: What's the what's your forecast for what central banks? Do? 326 00:18:44,640 --> 00:18:47,760 Speaker 1: Do we get easing from the e c B, B 327 00:18:47,920 --> 00:18:50,199 Speaker 1: O E and b O J, Do we get an 328 00:18:50,240 --> 00:18:53,479 Speaker 1: increase from the Fed? So the so the Bank of 329 00:18:53,560 --> 00:18:56,440 Speaker 1: England has already come out and made you know, lots 330 00:18:56,440 --> 00:18:59,920 Speaker 1: of masses about easing further. The e c D we 331 00:19:00,080 --> 00:19:04,200 Speaker 1: think will extend towy past March two thousands seventeen, almost certainly. 332 00:19:04,680 --> 00:19:06,960 Speaker 1: And there's some question about whether they used to be 333 00:19:07,000 --> 00:19:10,840 Speaker 1: walks away from using the capital key for its bond purchases, 334 00:19:10,880 --> 00:19:14,000 Speaker 1: which would help you know, Italian bonds, Spanish bonds, you know, 335 00:19:14,040 --> 00:19:16,200 Speaker 1: they buy less of bonds, but god knows buons don't 336 00:19:16,200 --> 00:19:18,480 Speaker 1: need any help. At minus twenty basis points on a 337 00:19:18,640 --> 00:19:20,960 Speaker 1: ten year burns. The Bank of Japan we think will 338 00:19:21,000 --> 00:19:24,000 Speaker 1: also do for the Quei. But I think none of 339 00:19:24,040 --> 00:19:26,600 Speaker 1: these central banks will go in the direction of further 340 00:19:26,880 --> 00:19:29,120 Speaker 1: negative interest rates, which is something that I've tried over 341 00:19:29,160 --> 00:19:32,000 Speaker 1: the last eight into infour months and it really hasn't helped. 342 00:19:32,040 --> 00:19:35,439 Speaker 1: So it will be balanced with expansion the Fed. You 343 00:19:35,480 --> 00:19:39,120 Speaker 1: know that the Fed, they keep making noises about hiking 344 00:19:39,560 --> 00:19:43,000 Speaker 1: this year. Markets do not believe them. It will be interesting. 345 00:19:43,000 --> 00:19:44,960 Speaker 1: It will be a close call as to what happens. 346 00:19:45,000 --> 00:19:47,320 Speaker 1: For now, we're still saying, you know, just because they 347 00:19:47,440 --> 00:19:49,639 Speaker 1: keep saying it that September still on the you know, 348 00:19:49,800 --> 00:19:52,320 Speaker 1: still on the books. But but the risks that again 349 00:19:52,600 --> 00:19:55,080 Speaker 1: to do that not happen. One thing I'm bringing up recently, 350 00:19:55,160 --> 00:19:57,000 Speaker 1: very quickly or a J will let you go, what's 351 00:19:57,040 --> 00:19:59,719 Speaker 1: your euro call? I mean, but you've got to you've 352 00:19:59,720 --> 00:20:03,159 Speaker 1: gotta on the fringes call, right, that's right. So we 353 00:20:03,200 --> 00:20:07,440 Speaker 1: think the euro will keep weakening to some extent. It's 354 00:20:07,480 --> 00:20:10,560 Speaker 1: contingent on what happens with other countries wanting to leave 355 00:20:10,600 --> 00:20:13,880 Speaker 1: the European Union, and if if that seems like it's 356 00:20:14,000 --> 00:20:17,440 Speaker 1: a realistic scenario, then the euro will have a lot 357 00:20:17,480 --> 00:20:19,760 Speaker 1: more room to fall. For now, we think it goes 358 00:20:19,840 --> 00:20:21,840 Speaker 1: down a little more. One was seven to the dollar 359 00:20:22,320 --> 00:20:25,080 Speaker 1: by the end of the third quarter. A J. Rogers fascinating, 360 00:20:25,280 --> 00:20:28,280 Speaker 1: just absolutely outstanding, thrilled to have you on the day 361 00:20:39,920 --> 00:20:42,760 Speaker 1: Skip York with us with Wis mackenzie. He had to 362 00:20:42,800 --> 00:20:46,040 Speaker 1: move to some place cooler, so he came to New 363 00:20:46,119 --> 00:20:54,520 Speaker 1: York on Friday, on Saturday, on Sunday, that would be Houston, Texas. 364 00:20:55,160 --> 00:20:57,640 Speaker 1: Thank you for the Houston weather we're having here right now. 365 00:20:58,600 --> 00:21:00,639 Speaker 1: What do you do in Houston when it's this hot? 366 00:21:00,680 --> 00:21:03,320 Speaker 1: You don't go see the Astros? Right? Well, actually you 367 00:21:03,320 --> 00:21:05,200 Speaker 1: do go see the Astros because it's a covered state. 368 00:21:05,240 --> 00:21:07,720 Speaker 1: It's a covered stadium. Yeah, so it's free air conditioning. 369 00:21:08,560 --> 00:21:10,800 Speaker 1: Any tips for a New York audience and those down 370 00:21:10,840 --> 00:21:14,520 Speaker 1: the eastern seaboards some seriously folks with some serious heat 371 00:21:14,840 --> 00:21:17,920 Speaker 1: and hundred degree temperatures and some of this. What what's 372 00:21:17,960 --> 00:21:21,440 Speaker 1: the Skip York trip trip freeat I would say it's 373 00:21:21,640 --> 00:21:24,200 Speaker 1: it's three things. One, don't wear a suit, to wear 374 00:21:24,320 --> 00:21:27,919 Speaker 1: light colored clothes, don't wear a bow tie, right and 375 00:21:27,960 --> 00:21:30,080 Speaker 1: don't wear a bow tie and uh and the third 376 00:21:30,080 --> 00:21:34,080 Speaker 1: one is hydration, despite the fact that it's humid, hydration 377 00:21:34,960 --> 00:21:37,679 Speaker 1: is key. Okay, there we go, your health tip for 378 00:21:37,720 --> 00:21:40,360 Speaker 1: the day. How's the health of the oil market. It's 379 00:21:40,400 --> 00:21:43,840 Speaker 1: ambiguous now, lots of other things going on, but let 380 00:21:43,840 --> 00:21:48,119 Speaker 1: me cut to the chase. His supply cleared it, It 381 00:21:48,160 --> 00:21:50,640 Speaker 1: hasn't cleared yet, but it's well, we're well on the way. 382 00:21:50,760 --> 00:21:53,560 Speaker 1: There's a trend there that gives you optimism. That's right, 383 00:21:53,640 --> 00:21:55,800 Speaker 1: that's right, And because of the capital cuts over the 384 00:21:55,880 --> 00:21:58,160 Speaker 1: last two years, it's a trend that can't be easily 385 00:21:58,160 --> 00:22:02,040 Speaker 1: reversed on a global basis. So we're adding towards the rebalancing. 386 00:22:02,040 --> 00:22:03,680 Speaker 1: We think it starts. You're going to really see it 387 00:22:03,720 --> 00:22:06,320 Speaker 1: in earnest later this year and through is it a 388 00:22:06,440 --> 00:22:10,879 Speaker 1: J curve or skip your curve, and that we enjoy 389 00:22:11,160 --> 00:22:14,560 Speaker 1: lower prices before we get the higher terminal value you've 390 00:22:14,600 --> 00:22:20,200 Speaker 1: been um about for months. Yeah, I think um, I 391 00:22:20,720 --> 00:22:23,960 Speaker 1: think the lower the lower price risk environment. The lower 392 00:22:24,000 --> 00:22:27,439 Speaker 1: price risk is really kind of driven by these external factors. 393 00:22:27,480 --> 00:22:29,879 Speaker 1: If you're just looking at the fundamentals. We ought to 394 00:22:29,880 --> 00:22:31,880 Speaker 1: be sort of flatish through the rest of this year 395 00:22:31,920 --> 00:22:33,920 Speaker 1: and then start to see a week Uh, this will 396 00:22:33,960 --> 00:22:37,000 Speaker 1: not be a price recovery like we've seen historically. It's 397 00:22:37,040 --> 00:22:40,040 Speaker 1: gonna be uh, it's gonna be slow, it's gonna be gradual, 398 00:22:40,080 --> 00:22:42,280 Speaker 1: and that creates concerns for us back when we get 399 00:22:42,280 --> 00:22:45,760 Speaker 1: all the way out to But you can't you can't 400 00:22:45,800 --> 00:22:49,280 Speaker 1: strip out the the non market effects like Brexit or 401 00:22:49,680 --> 00:22:52,200 Speaker 1: or you know, concerned about growth in the emerging economies. 402 00:22:52,400 --> 00:22:53,960 Speaker 1: I mean, there's just been a weight to the tape 403 00:22:54,040 --> 00:22:58,359 Speaker 1: on oil fifty one down to fifty forty nine and 404 00:22:58,520 --> 00:23:01,000 Speaker 1: just wither oil right now? I know, do you have 405 00:23:01,160 --> 00:23:03,520 Speaker 1: do you have a belief? Uh? You know, we you know, 406 00:23:03,600 --> 00:23:07,399 Speaker 1: we've been saying we're gonna range trade and that's you know, 407 00:23:07,480 --> 00:23:10,600 Speaker 1: and we can't. We don't break out below we don't 408 00:23:10,600 --> 00:23:12,840 Speaker 1: break out above it. And you know, we seem to 409 00:23:12,880 --> 00:23:15,479 Speaker 1: have a fairly solid floor sort of in the mid forties. 410 00:23:15,800 --> 00:23:18,840 Speaker 1: Skip York with us with Woods Mackenzie. As we look 411 00:23:18,880 --> 00:23:23,639 Speaker 1: at oil dr York, I look at Wood Mackenzie and 412 00:23:23,640 --> 00:23:25,760 Speaker 1: there they do a little bit of a different business. 413 00:23:26,040 --> 00:23:28,639 Speaker 1: If you were at a conference table right now, what 414 00:23:28,800 --> 00:23:31,840 Speaker 1: is the insight of the wood Mackenzie team that I 415 00:23:31,880 --> 00:23:35,240 Speaker 1: need to know? I think it's I think there's two 416 00:23:35,280 --> 00:23:37,720 Speaker 1: there's a near term you know, the near term insight 417 00:23:37,880 --> 00:23:41,280 Speaker 1: is that the recovery and on US oil production, it 418 00:23:41,560 --> 00:23:43,720 Speaker 1: will come, but it's gonna be much slower than than 419 00:23:43,760 --> 00:23:45,600 Speaker 1: people expect it to be. That you thought, like a 420 00:23:45,680 --> 00:23:48,240 Speaker 1: year ago, or that we thought a year ago. It's 421 00:23:48,280 --> 00:23:51,080 Speaker 1: it's gonna be a bit more protracted. And as the 422 00:23:51,160 --> 00:23:54,040 Speaker 1: longer we delay, uh sort of, the slower it might 423 00:23:54,080 --> 00:23:57,040 Speaker 1: be because just because of the supply chain is falling apart. 424 00:23:57,359 --> 00:23:59,400 Speaker 1: What does that mean? That's that's that's dramatic. What does 425 00:23:59,400 --> 00:24:02,040 Speaker 1: that stay? Well? We, you know, we basically when we 426 00:24:02,040 --> 00:24:04,240 Speaker 1: talk to operators, they the reason why they think the 427 00:24:04,240 --> 00:24:07,280 Speaker 1: recovery is gonna be slower than people expect is the 428 00:24:07,280 --> 00:24:10,080 Speaker 1: first one is gonna be financing. Can I actually you know, 429 00:24:10,119 --> 00:24:14,080 Speaker 1: can I actually access capital markets to uh, to supplement 430 00:24:14,160 --> 00:24:17,760 Speaker 1: investment greater than cash flow or you know, and so 431 00:24:17,840 --> 00:24:19,760 Speaker 1: do I find it have the financial health to do it? 432 00:24:19,800 --> 00:24:22,440 Speaker 1: Then they quickly turned to the supply chain. The equipment 433 00:24:22,440 --> 00:24:25,680 Speaker 1: has been idled. You can't idle that equipment very long 434 00:24:25,720 --> 00:24:28,000 Speaker 1: before it starts to need maintenance. And so you call 435 00:24:28,119 --> 00:24:31,080 Speaker 1: up for a rig and the drilling company says, I'll 436 00:24:31,080 --> 00:24:32,320 Speaker 1: get it to you in a couple of months because 437 00:24:32,320 --> 00:24:34,120 Speaker 1: I've got to get it back and working. And oh, 438 00:24:34,200 --> 00:24:36,040 Speaker 1: by the way, I have to hire people to run 439 00:24:36,080 --> 00:24:39,920 Speaker 1: that rig. And they've scattered now and folks, I've been 440 00:24:39,960 --> 00:24:42,120 Speaker 1: remiss on this. I mean, we've been a little bit 441 00:24:42,200 --> 00:24:45,600 Speaker 1: distracted with what's going on in Europe. Market's negative three 442 00:24:45,680 --> 00:24:49,000 Speaker 1: right now, the Vics fifteen point to five training before 443 00:24:49,040 --> 00:24:52,320 Speaker 1: market opening. Let's review, Skip York. Where were you telling 444 00:24:52,359 --> 00:24:54,560 Speaker 1: me and Michael McKee to take our one oh one 445 00:24:54,640 --> 00:24:57,440 Speaker 1: k and load the boat on XXON not long ago? 446 00:24:57,760 --> 00:25:01,160 Speaker 1: Bear market in XXON world's coming to an end negative 447 00:25:02,840 --> 00:25:06,520 Speaker 1: right now, it's a negative nine off the highs of 448 00:25:06,560 --> 00:25:10,240 Speaker 1: two thousand fourteen. That shart looks like XN is gonna 449 00:25:10,320 --> 00:25:14,360 Speaker 1: go to record highs. Wait, oil was a hundred. Granted 450 00:25:14,400 --> 00:25:17,280 Speaker 1: it got to twenty nine, and we've had a bull market, 451 00:25:17,359 --> 00:25:20,160 Speaker 1: a mini bull market, and Oil can debate that forever. 452 00:25:20,800 --> 00:25:24,360 Speaker 1: How does Exxon retain that value and doesn't it make 453 00:25:24,400 --> 00:25:30,199 Speaker 1: it the ultimate by with a modest recovery towards a hundred? Okay, well, 454 00:25:30,480 --> 00:25:32,520 Speaker 1: first of all, let me declare my biases that I'm 455 00:25:32,520 --> 00:25:34,720 Speaker 1: an alumni of Exxon, and so I still I love 456 00:25:34,760 --> 00:25:36,800 Speaker 1: the company, I love I love the stock. It's just 457 00:25:37,000 --> 00:25:42,800 Speaker 1: done really well team, and I root for the um 458 00:25:42,960 --> 00:25:46,159 Speaker 1: the UH. I think that where Exxon does this is 459 00:25:46,200 --> 00:25:49,680 Speaker 1: where Exxon always surprises people, is it? When you get 460 00:25:49,720 --> 00:25:53,800 Speaker 1: into a downturn they get even more aggressive on cost 461 00:25:53,920 --> 00:25:58,040 Speaker 1: and technology, and so they come out of every downturn 462 00:25:58,200 --> 00:26:01,200 Speaker 1: with a lower cost of perpet earl of running the business. 463 00:26:01,560 --> 00:26:05,000 Speaker 1: And that just why and as prices recover the Mike 464 00:26:05,160 --> 00:26:07,400 Speaker 1: help me here, Mike, Mike, you and I can do 465 00:26:07,440 --> 00:26:14,040 Speaker 1: the math. Hundred dollar oil X generated sixty one bazillion 466 00:26:14,160 --> 00:26:19,840 Speaker 1: dollars of IBATA. It's been more than halved to tight 467 00:26:20,000 --> 00:26:26,840 Speaker 1: billion sixty one to and the stocks down. N that's surreal. 468 00:26:27,600 --> 00:26:31,080 Speaker 1: That's like arguing about Texas A and I'm football. It's surreal. 469 00:26:32,200 --> 00:26:33,840 Speaker 1: I don't know where to go with Texas and but 470 00:26:34,680 --> 00:26:37,800 Speaker 1: here's what I'm wondering about this, uh is we we 471 00:26:37,880 --> 00:26:41,280 Speaker 1: look at the price and we say they can't make money. 472 00:26:41,320 --> 00:26:44,359 Speaker 1: But excens a company. It sells stuff. So we we 473 00:26:44,520 --> 00:26:47,399 Speaker 1: focus so much on what's being produced. It's really what's 474 00:26:47,440 --> 00:26:51,600 Speaker 1: being demanded, right that that matters to them. And demand 475 00:26:51,800 --> 00:26:55,320 Speaker 1: has not fallen. It's it's not increasing maybe as fast 476 00:26:55,359 --> 00:26:58,120 Speaker 1: as it was, but the world is not wanting less 477 00:26:58,160 --> 00:27:01,160 Speaker 1: oil over the last eighteen months, right right. I think 478 00:27:01,200 --> 00:27:03,399 Speaker 1: that there's two things to remember is that oil isn't 479 00:27:03,400 --> 00:27:06,200 Speaker 1: a revenue business. It's a margin business. So even if 480 00:27:06,200 --> 00:27:08,280 Speaker 1: my revenue line is dropping, if I can drive that 481 00:27:08,320 --> 00:27:12,320 Speaker 1: cost line down faster, margins improve, and that's a lot 482 00:27:12,359 --> 00:27:14,000 Speaker 1: of what Exon has been doing in the cycle. And 483 00:27:14,000 --> 00:27:17,480 Speaker 1: then to your point, Exn is an integrated oil company, 484 00:27:17,600 --> 00:27:21,320 Speaker 1: so the upstream has been getting hammered for two years, 485 00:27:21,480 --> 00:27:23,719 Speaker 1: but the downstream and the chemicals part of the business 486 00:27:23,760 --> 00:27:26,960 Speaker 1: is benefiting from those lower prices, and so that should 487 00:27:26,960 --> 00:27:29,679 Speaker 1: be reflected in the stock Mike five year dividend growth 488 00:27:29,720 --> 00:27:32,359 Speaker 1: ex On ten point four percent. I would have never 489 00:27:32,400 --> 00:27:35,240 Speaker 1: guessed that in a million years. Full disclosure, folks, I 490 00:27:35,240 --> 00:27:37,680 Speaker 1: don't want to share a vaccin mobile. I sold them 491 00:27:37,760 --> 00:27:41,000 Speaker 1: all to Skip Ork at hundred dollars on barrel. It's right. 492 00:27:42,080 --> 00:27:44,040 Speaker 1: I bought some x On mobile last week, a couple 493 00:27:44,040 --> 00:27:48,680 Speaker 1: of gallons worth very That's just my involvement. And now 494 00:27:48,960 --> 00:27:52,200 Speaker 1: now that we've done disclosure, the other majors and sort 495 00:27:52,200 --> 00:27:54,120 Speaker 1: of in the same boat, I would have imaged, Yeah, 496 00:27:54,520 --> 00:27:56,920 Speaker 1: you know, it's to a varying degree of you know how, 497 00:27:57,040 --> 00:28:00,600 Speaker 1: you know how capital discipline. You can't develop capital discipline 498 00:28:00,680 --> 00:28:03,199 Speaker 1: in the downturn. You've got to be capital disciplined across 499 00:28:03,280 --> 00:28:05,360 Speaker 1: the cycle. And that's a bit of the Exxon difference. 500 00:28:05,960 --> 00:28:09,600 Speaker 1: But the difference between the mega majors and and sort 501 00:28:09,600 --> 00:28:12,640 Speaker 1: of then the international the large internationals are the small 502 00:28:12,680 --> 00:28:14,639 Speaker 1: independence in the US is that they tend to be 503 00:28:14,680 --> 00:28:18,880 Speaker 1: more capital disciplined that relative to the other guys down 504 00:28:18,880 --> 00:28:21,000 Speaker 1: the chain, and so you sort of see them now 505 00:28:21,040 --> 00:28:24,960 Speaker 1: positioning themselves for for growth. We saw VP sanction a 506 00:28:25,080 --> 00:28:30,000 Speaker 1: large len G project last week. Chevron sanctioned the next 507 00:28:30,040 --> 00:28:33,840 Speaker 1: expansion of the ten Geese project in Kazakhstan earlier this week. 508 00:28:34,119 --> 00:28:36,720 Speaker 1: You're starting to see those oil companies starting to make 509 00:28:36,760 --> 00:28:40,080 Speaker 1: those steps. There's a night you know there oil companies 510 00:28:40,120 --> 00:28:44,640 Speaker 1: positioning for growth. Skip York with US with woodmand Ckenzie 511 00:28:44,720 --> 00:28:47,840 Speaker 1: and Skip. I. I look at natural gas and I 512 00:28:47,880 --> 00:28:50,760 Speaker 1: guess it's been thirty years of disappointment, is how I 513 00:28:50,880 --> 00:28:53,800 Speaker 1: put it. There's a story that's constructed, whether it's ellen 514 00:28:53,880 --> 00:28:57,560 Speaker 1: G or this. I know, the Panama Canals changing the dynamics, 515 00:28:57,600 --> 00:29:00,200 Speaker 1: and there's this, that and the other thing. How be 516 00:29:00,320 --> 00:29:04,280 Speaker 1: with natural gas? Is there a trend or is it 517 00:29:04,400 --> 00:29:09,920 Speaker 1: justice malaise under three down to two gazillion b t 518 00:29:10,080 --> 00:29:13,080 Speaker 1: use per cubic? Whatever it is? Yeah, I think the 519 00:29:13,080 --> 00:29:16,080 Speaker 1: gas market there's you know that there will be a 520 00:29:16,120 --> 00:29:19,520 Speaker 1: slight uptrend, but the cost curvece so flat, there's so 521 00:29:19,640 --> 00:29:23,680 Speaker 1: much reserves that are economic between four and five dollars 522 00:29:24,440 --> 00:29:28,560 Speaker 1: uh a million, you know, per thousand cubic feet, that 523 00:29:29,480 --> 00:29:31,720 Speaker 1: that even if prices start to rise, they're gonna they're 524 00:29:31,720 --> 00:29:33,520 Speaker 1: gonna hit a ceiling sort of in that four to 525 00:29:33,600 --> 00:29:35,840 Speaker 1: five dollar range. So that so, and that's our view. 526 00:29:35,880 --> 00:29:38,640 Speaker 1: Our view is that gas prices will rise from where 527 00:29:38,720 --> 00:29:41,080 Speaker 1: they are now, but they're not going to breach four 528 00:29:41,160 --> 00:29:45,080 Speaker 1: or five dollars for years because the resource base doesn't 529 00:29:45,120 --> 00:29:48,280 Speaker 1: require a price higher than that. Are we in a 530 00:29:48,360 --> 00:29:55,440 Speaker 1: sort of a race between fuel efficiency and supply Oh 531 00:29:55,480 --> 00:29:57,240 Speaker 1: that's a really good that's a really good question. I 532 00:29:57,240 --> 00:29:59,800 Speaker 1: mean that because you know, in the long term, over 533 00:30:00,000 --> 00:30:03,160 Speaker 1: over time, you know, fuel efficiency is you know, fuel 534 00:30:03,160 --> 00:30:07,720 Speaker 1: efficiency technology miles per gallon or something. In the next 535 00:30:07,760 --> 00:30:10,520 Speaker 1: few years, the losses, Yeah, so that you know, so 536 00:30:10,560 --> 00:30:13,520 Speaker 1: that but remember that fifty five miles per gallon on 537 00:30:13,560 --> 00:30:18,360 Speaker 1: a new sale isn't fifty five miles per gallon. But yeah, 538 00:30:18,560 --> 00:30:21,200 Speaker 1: but you know, as the fleet turns over, it gets 539 00:30:21,200 --> 00:30:24,880 Speaker 1: more fuel efficient, as you know, as productivity improves on 540 00:30:24,920 --> 00:30:26,840 Speaker 1: the supply side. You know, both of those are downward 541 00:30:26,840 --> 00:30:30,800 Speaker 1: pressure on on price. If we reached peak demand. No, 542 00:30:31,000 --> 00:30:34,040 Speaker 1: from a US perspective, we're getting close. Europe's already turned, 543 00:30:34,080 --> 00:30:37,120 Speaker 1: Japan's already turned. The U S will will see that 544 00:30:37,120 --> 00:30:40,840 Speaker 1: that bend, uh sort of in the next year bend. 545 00:30:41,680 --> 00:30:43,520 Speaker 1: That bend is going to be driven by gasoline and 546 00:30:43,520 --> 00:30:46,280 Speaker 1: it's gonna be driven by fuel efficiency. Uh. You know, 547 00:30:46,360 --> 00:30:50,680 Speaker 1: we've we've de oiled a lot of the economy already 548 00:30:50,760 --> 00:30:52,920 Speaker 1: from you know, getting out of fuel, oil and dieselent 549 00:30:53,520 --> 00:30:56,400 Speaker 1: what percentage if we de oiled? That's a brilliant I 550 00:30:56,400 --> 00:30:59,000 Speaker 1: can I steal that oil oiled? I gotta put that 551 00:30:59,040 --> 00:31:01,680 Speaker 1: on Twitter. That's just just brilliant. You know what percentage 552 00:31:01,680 --> 00:31:05,280 Speaker 1: of the of the U S oil demand has has 553 00:31:05,360 --> 00:31:08,360 Speaker 1: de oiled? You know, I would say it's probably sort 554 00:31:08,360 --> 00:31:10,600 Speaker 1: of the neighborhood of range of ten or fift because 555 00:31:10,600 --> 00:31:13,520 Speaker 1: gasoline and diesel road transportation is just, you know, the 556 00:31:13,520 --> 00:31:16,920 Speaker 1: big behemoth in the demand equation for the US. So 557 00:31:16,920 --> 00:31:20,520 Speaker 1: we've stripped oil out of all those other sectors. But 558 00:31:20,680 --> 00:31:23,400 Speaker 1: the fuel efficiency in the cafe standards is now going 559 00:31:23,440 --> 00:31:26,760 Speaker 1: to attack the you know that base demand loss. Your 560 00:31:26,840 --> 00:31:29,840 Speaker 1: beloved exon do they have a strategy. Do they fly 561 00:31:30,000 --> 00:31:32,800 Speaker 1: Mackensey in to tell them what to do in a 562 00:31:32,880 --> 00:31:35,720 Speaker 1: de oiled world. Well, I'll tell it, or forty years 563 00:31:35,760 --> 00:31:38,400 Speaker 1: from now, I'll tell a quick Mackenzie story is that 564 00:31:38,720 --> 00:31:40,000 Speaker 1: I was once in a room when I was with 565 00:31:40,240 --> 00:31:43,000 Speaker 1: EXN and someone said we should bring in some consultants 566 00:31:43,000 --> 00:31:45,520 Speaker 1: to help us, and an Exxon executive stare at ends 567 00:31:45,560 --> 00:31:47,680 Speaker 1: and what makes you think that somebody who's never been 568 00:31:47,720 --> 00:31:50,000 Speaker 1: in the industry knows our business better than somebody that's 569 00:31:50,040 --> 00:31:52,680 Speaker 1: been in the industry a hundred years. So you know, 570 00:31:52,720 --> 00:31:56,479 Speaker 1: they're they're very internalized. What what's Exon strategy? It's not 571 00:31:56,520 --> 00:31:59,320 Speaker 1: a dash to gas, but over time, and it's been 572 00:31:59,360 --> 00:32:01,600 Speaker 1: for the last of the years, the Exon portfolio is 573 00:32:01,640 --> 00:32:05,280 Speaker 1: shifting from oil to gas because gas is going to 574 00:32:05,320 --> 00:32:07,360 Speaker 1: be a fuel of the future for the emerging world 575 00:32:07,360 --> 00:32:11,040 Speaker 1: through power generation, through and eventually penetrating into things like 576 00:32:11,160 --> 00:32:15,120 Speaker 1: road road transportation. And you know, the Exxon will always 577 00:32:15,160 --> 00:32:18,200 Speaker 1: pivot to where the market. You know, Exxon strategy at 578 00:32:18,200 --> 00:32:19,840 Speaker 1: the end of the day is to skate where the 579 00:32:19,880 --> 00:32:22,160 Speaker 1: puck is going, not skate where the puck is. Yeah, 580 00:32:22,360 --> 00:32:26,160 Speaker 1: my strategy as the nash Rambler doesn't like the modern gasolines, 581 00:32:27,360 --> 00:32:32,520 Speaker 1: got to turn over that fleet Skip York with Woods Mackenzie. 582 00:32:32,640 --> 00:32:47,760 Speaker 1: Fabulous minutes out yesterday showed that the Central Bank of 583 00:32:47,800 --> 00:32:51,320 Speaker 1: the United States was concerned about two particular things at 584 00:32:51,320 --> 00:32:54,640 Speaker 1: their last meeting, the situation in the labor market in 585 00:32:54,680 --> 00:32:58,040 Speaker 1: the United States and the situation with the UK and 586 00:32:58,280 --> 00:33:01,440 Speaker 1: it's pending Brexit vote. Well, the UK has now voted 587 00:33:01,440 --> 00:33:04,480 Speaker 1: in tomorrow. The next jobs report is upon us. Mohammad 588 00:33:04,480 --> 00:33:08,440 Speaker 1: Allarian has been talking about both Senior Advisor on the 589 00:33:08,440 --> 00:33:12,120 Speaker 1: Economy to Alliance and Bloomberg View columnists. He joins us now, Mohammed, 590 00:33:12,120 --> 00:33:15,280 Speaker 1: thanks for for being with us today. You're writing the US. 591 00:33:15,880 --> 00:33:18,320 Speaker 1: You know, the main major issue for the FED was 592 00:33:18,360 --> 00:33:21,800 Speaker 1: the labor market. You're writing that the US not only 593 00:33:22,000 --> 00:33:25,120 Speaker 1: should get a strong jobs report, it needs a strong 594 00:33:25,200 --> 00:33:28,200 Speaker 1: jobs report. We do, and we do in three different ways. 595 00:33:28,880 --> 00:33:33,000 Speaker 1: More job creation than the city eight thousand of last month, 596 00:33:33,440 --> 00:33:37,040 Speaker 1: a rise in the participation weight, which worrisombly has fallen 597 00:33:37,080 --> 00:33:39,440 Speaker 1: by point four percentage points in the last two months. 598 00:33:39,520 --> 00:33:44,680 Speaker 1: And finally, higher wages that is fundamental to fueling a 599 00:33:44,880 --> 00:33:49,800 Speaker 1: sustainable recovery and hopefully getting out of this sluggish two 600 00:33:49,800 --> 00:33:51,800 Speaker 1: percent growth that we've been in for such a long time. 601 00:33:52,040 --> 00:33:55,040 Speaker 1: What happens if we get those kind of numbers. We 602 00:33:55,280 --> 00:33:58,960 Speaker 1: got thirty eight thousand last month, and basically the entire 603 00:33:59,040 --> 00:34:02,320 Speaker 1: world stop spinning on its axis. Yeah, we did, because 604 00:34:02,920 --> 00:34:05,600 Speaker 1: the data has been mixed, and that was such a 605 00:34:05,720 --> 00:34:09,160 Speaker 1: stunningly low number that it led a lot of people 606 00:34:09,320 --> 00:34:15,080 Speaker 1: and markets in particular to con to completely revise the outlook. Um. 607 00:34:15,080 --> 00:34:19,160 Speaker 1: The irony is the economy, the FED, and the markets 608 00:34:19,640 --> 00:34:24,200 Speaker 1: all need strong jobs report for long term sustainability, but 609 00:34:24,280 --> 00:34:27,360 Speaker 1: in the short term a strong job report could actually 610 00:34:27,400 --> 00:34:30,360 Speaker 1: cause more market volatility, especially in the fixed income market 611 00:34:30,760 --> 00:34:34,680 Speaker 1: where traders have effectively sideline the FED. There are so 612 00:34:34,719 --> 00:34:37,280 Speaker 1: many things to talk about. I mentioned your essay today 613 00:34:37,280 --> 00:34:40,560 Speaker 1: on how we staggered to the Friday jobs report. I 614 00:34:40,600 --> 00:34:44,759 Speaker 1: would love to understand the game theory that the Italian 615 00:34:44,840 --> 00:34:48,759 Speaker 1: government has on the Italy banking crisis. We've had a 616 00:34:48,920 --> 00:34:52,600 Speaker 1: raging debate across surveillance in the last three days on this. 617 00:34:53,160 --> 00:34:57,520 Speaker 1: By definition, doesn't there have to be a will to 618 00:34:57,680 --> 00:35:02,320 Speaker 1: have a cramdown of sorts where people take losses. That 619 00:35:02,680 --> 00:35:05,279 Speaker 1: got to be part of the equation, right, so bail 620 00:35:05,400 --> 00:35:08,319 Speaker 1: in should be part of the equation. The problem is 621 00:35:08,360 --> 00:35:11,080 Speaker 1: that bank that has been sold to the retail sector 622 00:35:11,080 --> 00:35:17,160 Speaker 1: in Italy, and politically a bailing is very difficult. You know, 623 00:35:17,880 --> 00:35:20,440 Speaker 1: you look at and I love the conversations you've been 624 00:35:20,440 --> 00:35:24,360 Speaker 1: having all all morning about this issue. The banking system 625 00:35:24,920 --> 00:35:27,840 Speaker 1: is in a secular journey towards being more of a 626 00:35:27,960 --> 00:35:32,320 Speaker 1: utility around the world. Then add to that cyclical headwinds 627 00:35:32,360 --> 00:35:37,560 Speaker 1: that include lower interest rates which each either way at potential, 628 00:35:38,440 --> 00:35:43,640 Speaker 1: and lower growth that undermines the credit quality, and you 629 00:35:43,680 --> 00:35:46,480 Speaker 1: have is sector that's very much in play now. If 630 00:35:46,480 --> 00:35:48,239 Speaker 1: you put on top of that the notion that you're 631 00:35:48,239 --> 00:35:52,080 Speaker 1: going to bail in retail sector, then you also have 632 00:35:52,120 --> 00:35:54,120 Speaker 1: a political issue and that's what Italy is facing right 633 00:35:54,160 --> 00:35:57,440 Speaker 1: now and it's playing out in very difficult discussions between 634 00:35:58,200 --> 00:36:01,240 Speaker 1: Brussels and Rome. And then an other game theory item 635 00:36:01,360 --> 00:36:04,760 Speaker 1: is the property casually firms in the United Kingdom. Obviously 636 00:36:04,800 --> 00:36:06,960 Speaker 1: they are a liquid they can't you know, there's shocks 637 00:36:07,000 --> 00:36:09,879 Speaker 1: and they have to shut down trading. Do you take 638 00:36:09,920 --> 00:36:13,600 Speaker 1: that liquidity event over to other more liquid asset classes 639 00:36:13,920 --> 00:36:17,040 Speaker 1: or is it discreet to commercial real estate? So first, 640 00:36:17,120 --> 00:36:20,800 Speaker 1: this is in no way similar to Lehman. This is 641 00:36:20,840 --> 00:36:23,080 Speaker 1: not about the payments and settlement system. This is not 642 00:36:23,120 --> 00:36:26,479 Speaker 1: about counterparty risk in the banking system. This is about 643 00:36:26,480 --> 00:36:30,719 Speaker 1: a sector that overpromised liquidity, and we've got to get 644 00:36:30,840 --> 00:36:35,640 Speaker 1: hold of this notion that you cannot have vehicles that 645 00:36:35,680 --> 00:36:39,560 Speaker 1: promise daily liquidity but invest in liquid assets. Um. You know, 646 00:36:39,600 --> 00:36:41,800 Speaker 1: they are prone to accidents, and we're seeing it again. 647 00:36:42,120 --> 00:36:43,520 Speaker 1: I think the sector as a whole is going to 648 00:36:43,600 --> 00:36:48,120 Speaker 1: get hit hard, but it will be an opportunity, especially 649 00:36:48,160 --> 00:36:52,560 Speaker 1: for those with permanent capital. The you you mentioned that 650 00:36:52,600 --> 00:36:56,439 Speaker 1: the difficult negotiations that he uses. We've got rules. What's 651 00:36:56,440 --> 00:36:58,799 Speaker 1: more important to fix the banking system or to stick 652 00:36:58,800 --> 00:37:01,600 Speaker 1: to the rules? Hoping you can stick you can fix 653 00:37:01,640 --> 00:37:03,640 Speaker 1: the backing system sticking to the rules. That's the whole 654 00:37:03,640 --> 00:37:06,480 Speaker 1: point of having we formed your rules is so that 655 00:37:06,560 --> 00:37:09,360 Speaker 1: you can fix it. Um. You know this, Mike and 656 00:37:09,440 --> 00:37:14,120 Speaker 1: Tom really well. Re Form has short term costs. Um. 657 00:37:14,200 --> 00:37:17,080 Speaker 1: So people speak well of reform until they have to 658 00:37:17,120 --> 00:37:20,479 Speaker 1: implement it, and the minute they face the short term costs, 659 00:37:20,480 --> 00:37:23,000 Speaker 1: that would rather postpone the reform. And that's the problem 660 00:37:23,000 --> 00:37:26,239 Speaker 1: with seeing all over the world. Mom and the polarity 661 00:37:26,320 --> 00:37:30,040 Speaker 1: of a surveillance debate is Luigians and Galas of Chicago 662 00:37:31,080 --> 00:37:34,320 Speaker 1: with an urgency about the Italian Bank suggesting the government 663 00:37:34,360 --> 00:37:38,840 Speaker 1: may fall, and Davide Sarah, who's exceptionally competent is a 664 00:37:38,880 --> 00:37:41,759 Speaker 1: bank analyst with his work at work in Stanley for years, 665 00:37:41,800 --> 00:37:44,319 Speaker 1: saying this is way blown out of proportion and there 666 00:37:44,360 --> 00:37:47,480 Speaker 1: can be some form of hybrid government workout of the 667 00:37:47,480 --> 00:37:51,720 Speaker 1: Italian banks, which should our audience listen to ze Galas 668 00:37:52,160 --> 00:37:54,640 Speaker 1: or Sarah? And the truth is somewhere in between. I mean, 669 00:37:55,560 --> 00:37:57,400 Speaker 1: I knew you were going to go there. I mean 670 00:37:57,440 --> 00:38:01,160 Speaker 1: we knew that, Michael. But remember wack silent. Perception and 671 00:38:01,239 --> 00:38:04,680 Speaker 1: reality in markets can take time. Sometimes perceptions can take 672 00:38:04,719 --> 00:38:08,640 Speaker 1: control of markets, overshoot and then create their own dynamics. 673 00:38:08,680 --> 00:38:12,439 Speaker 1: That's particularly a risk for the banking system. And when 674 00:38:12,480 --> 00:38:17,160 Speaker 1: you have hybrid securities that change their nature depending on 675 00:38:17,239 --> 00:38:20,880 Speaker 1: where the bank is trading, you can have these multiple 676 00:38:20,920 --> 00:38:24,720 Speaker 1: equilibrium um as as as you call it, Tom, whereby 677 00:38:24,800 --> 00:38:27,160 Speaker 1: one bad outcome needs to another bad outcome and you 678 00:38:27,239 --> 00:38:31,600 Speaker 1: don't go back, you don't go back to flogging your 679 00:38:31,600 --> 00:38:34,759 Speaker 1: book the only game in town, Mohammed. Congratulations has done 680 00:38:34,800 --> 00:38:39,560 Speaker 1: extremely well. What's the liquidity delusion right now? You see 681 00:38:39,600 --> 00:38:42,719 Speaker 1: it in what's happening in the UK property sector. The 682 00:38:42,760 --> 00:38:47,560 Speaker 1: Liquidity delusion is when investors by assets believing that if 683 00:38:47,600 --> 00:38:50,719 Speaker 1: they collectively change their mind, the market will accommodate the 684 00:38:50,840 --> 00:38:54,080 Speaker 1: exit in an oddly fashion. And as we saw in 685 00:38:54,160 --> 00:38:56,360 Speaker 1: high yield, even as we saw in some segments of 686 00:38:56,400 --> 00:38:59,200 Speaker 1: the U S Treasury market tips for example, the system 687 00:38:59,239 --> 00:39:04,040 Speaker 1: has overprom liquidity to its investors, and investors should christ 688 00:39:04,120 --> 00:39:07,080 Speaker 1: in a much higher liquidity whiskey him than they have 689 00:39:07,160 --> 00:39:10,120 Speaker 1: so far. I mean, Mike jump In her plays a monopolize. 690 00:39:10,280 --> 00:39:15,920 Speaker 1: I'm sorry, I love mommed Chater Mohammed's chapter when desirable 691 00:39:16,000 --> 00:39:19,520 Speaker 1: infeasible differ? Is that like talking to your kids? I 692 00:39:19,560 --> 00:39:23,640 Speaker 1: think so. Yeah, it may be. We've got to talk 693 00:39:23,640 --> 00:39:25,600 Speaker 1: about Brexit before I let you go here. You're you've 694 00:39:25,600 --> 00:39:29,200 Speaker 1: been noting that this is one of those t junction 695 00:39:29,320 --> 00:39:33,600 Speaker 1: moments for the United Kingdom, Uh, that they need to 696 00:39:33,640 --> 00:39:37,839 Speaker 1: get their act together or they're going to suffer the consequences. Yeah, 697 00:39:37,880 --> 00:39:40,600 Speaker 1: you know. It's not often that you put in play 698 00:39:40,719 --> 00:39:43,640 Speaker 1: both the current and capital account of a bounce of payments, 699 00:39:43,719 --> 00:39:46,360 Speaker 1: and that's what the UK has done with this Brexit vote. 700 00:39:46,920 --> 00:39:49,120 Speaker 1: No one is quite sure about the trading relations that 701 00:39:49,160 --> 00:39:50,960 Speaker 1: it's going to have with the EU so the current 702 00:39:50,960 --> 00:39:54,479 Speaker 1: account isn't play and the capital account isn't play because 703 00:39:54,520 --> 00:39:57,440 Speaker 1: it no longer makes sense to establish yourself in Britain 704 00:39:57,680 --> 00:39:59,560 Speaker 1: to serve the rest of Europe. So when both the 705 00:39:59,600 --> 00:40:02,080 Speaker 1: capts and the current account in play, and when the 706 00:40:02,120 --> 00:40:06,000 Speaker 1: central bank cannot use the interest rate instruments to stabilize 707 00:40:06,000 --> 00:40:08,080 Speaker 1: the currency, which is the case for the Bank of England, 708 00:40:08,760 --> 00:40:12,560 Speaker 1: you get all sorts of potential outcomes. So unless you 709 00:40:12,680 --> 00:40:16,239 Speaker 1: fail to void quickly, unless the UK and the EU 710 00:40:16,400 --> 00:40:19,359 Speaker 1: come up with an alternative arrangement, there's a lot more 711 00:40:19,440 --> 00:40:22,280 Speaker 1: volatility ahead for the fifth largest economy in the world, 712 00:40:22,760 --> 00:40:25,000 Speaker 1: and there's a lot more uncertainty ahead for the largest 713 00:40:25,040 --> 00:40:27,839 Speaker 1: single economic region, which is the eure your work over 714 00:40:27,840 --> 00:40:31,920 Speaker 1: there ahead place. There's two views of where this is 715 00:40:31,960 --> 00:40:35,000 Speaker 1: going to go. You know, it's the FED. They're basically saying, yeah, 716 00:40:35,040 --> 00:40:38,040 Speaker 1: bad for you, but not so bad for the United States. Yeah, 717 00:40:38,040 --> 00:40:41,279 Speaker 1: I think we control our destiny in the United States 718 00:40:41,320 --> 00:40:44,080 Speaker 1: are economic destiny. But as we have found out over 719 00:40:44,120 --> 00:40:46,439 Speaker 1: the last few weeks, we do not control our yield curve. 720 00:40:46,760 --> 00:40:49,360 Speaker 1: Our year curve as being influenced by what's happening in Europe. 721 00:40:49,719 --> 00:40:53,680 Speaker 1: So you have this very interesting divide between financial values 722 00:40:54,040 --> 00:40:57,799 Speaker 1: and fundamentals, and this is uncharted territory for the US. 723 00:40:57,840 --> 00:41:00,680 Speaker 1: I grew up like others thinking the US is the 724 00:41:00,800 --> 00:41:03,319 Speaker 1: large economy. It's not a small economy. It's a large 725 00:41:03,320 --> 00:41:06,600 Speaker 1: economy and it controls both the economic and financial destiny. 726 00:41:06,760 --> 00:41:09,080 Speaker 1: We're starting to see that the US may not be 727 00:41:09,160 --> 00:41:12,280 Speaker 1: so large when it comes to financial markets and de Larian, 728 00:41:12,320 --> 00:41:14,839 Speaker 1: thank you so much. Muhammad Aillarian writing in Bloomberg View 729 00:41:14,840 --> 00:41:19,200 Speaker 1: today on the American job economy. His book highly recommended, 730 00:41:19,239 --> 00:41:22,360 Speaker 1: The Only Game in Town. Mike mentioned t Decision. To me, 731 00:41:22,440 --> 00:41:25,279 Speaker 1: that's the best chapters work on game theory. There is 732 00:41:25,280 --> 00:41:32,160 Speaker 1: just brilliant The Only Game in Town. Thanks for listening 733 00:41:32,239 --> 00:41:36,680 Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews 734 00:41:36,760 --> 00:41:42,120 Speaker 1: on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm 735 00:41:42,160 --> 00:41:46,520 Speaker 1: on Twitter at Tom Keane, Michael McKee is at Economy 736 00:41:46,560 --> 00:41:50,279 Speaker 1: Before the podcast, you can always catch us worldwide. I'm 737 00:41:50,320 --> 00:41:51,200 Speaker 1: Bloomberg Radio