WEBVTT - Surveillance: Peak Oil Demand Coming, Morse Says 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.280 To find Bloomberg Surveillance on Apple Podcasts, sun Cloud, Bloomberg 0:00:23.360 --> 0:00:29.240 dot Com and of course on the Bloomberg terminal. This 0:00:29.400 --> 0:00:33.280 is a joy, particularly for September. Edward Morris is its 0:00:33.280 --> 0:00:36.720 city group working with a team of very smart people 0:00:37.240 --> 0:00:40.960 and they're working on the definitive deck for petroleum that 0:00:41.040 --> 0:00:45.440 will become widely tweaked and available into September. Ed Morris, 0:00:45.560 --> 0:00:48.360 your deck, which we've taken a glance at, is a 0:00:48.400 --> 0:00:52.199 bombshell document. You say there's going to be over supply, 0:00:52.760 --> 0:00:56.840 that there will be many regime changes. What's the regime 0:00:56.960 --> 0:01:00.840 change in oil? I need to focus on. Well, I 0:01:00.880 --> 0:01:04.520 think there are three bits of of a fundamental change. 0:01:05.280 --> 0:01:06.959 The first one is still just look at home at 0:01:07.000 --> 0:01:10.759 the US, where for the last decade of the US 0:01:10.840 --> 0:01:13.640 production was growing at a remarkable rate. In fact, the 0:01:13.760 --> 0:01:18.319 US in that ten year period supplied seventy of the 0:01:18.360 --> 0:01:22.360 total world energy incremental supply, and that's just not going 0:01:22.400 --> 0:01:25.800 to happen again. I'm tempted to say ever again, but 0:01:25.920 --> 0:01:29.880 really not again. Um, and that's going to change things 0:01:29.959 --> 0:01:33.360 a bit. The US has had a really significant impact 0:01:33.440 --> 0:01:37.080 on the world. Uh. It put OPEC plus into a 0:01:37.120 --> 0:01:40.440 defensive mode. Uh. They are still in a defensive mode, 0:01:40.880 --> 0:01:42.840 and I think they'll remain in a defensive mode. And 0:01:42.880 --> 0:01:46.000 there's a second issue that I think is a bit 0:01:46.000 --> 0:01:49.720 of a regime change, namely that OPEC was really flourishing 0:01:50.120 --> 0:01:53.000 because of the ability of the OPEC producers to say, 0:01:53.440 --> 0:01:55.400 we don't have to worry about today so much. It's 0:01:55.440 --> 0:01:58.640 tomorrow that we will have our day because demand is 0:01:58.680 --> 0:02:01.760 going to be rising for a and uh and the 0:02:01.800 --> 0:02:04.280 supply will be our. So now both on the supply 0:02:04.360 --> 0:02:07.160 side and on the demand side that's being challenged. And 0:02:07.280 --> 0:02:09.800 on this day of U N Action on climate three 0:02:09.800 --> 0:02:13.639 thousand plus plages is well, we've observed that China has 0:02:13.760 --> 0:02:17.000 coal that's got to get fixed. But also the US 0:02:17.120 --> 0:02:21.160 needs to step up some form of cogent policy. What 0:02:21.360 --> 0:02:25.760 is the morse efficacious policy for the United States on 0:02:25.919 --> 0:02:29.880 climate change in linking it into your world? Well, I 0:02:29.919 --> 0:02:31.799 think we're getting a head start on it. I think 0:02:31.840 --> 0:02:35.840 we need the government there to create a framework. Governments 0:02:35.840 --> 0:02:39.240 didn't have any framework before the Paris Agreement UH, and 0:02:39.280 --> 0:02:43.200 they got a framework and the bond market simply skyrocketed 0:02:43.240 --> 0:02:46.959 for sustainability. Right after that, the Paris Agreement said hey, 0:02:47.000 --> 0:02:51.520 we need three to five trillion dollars of investment. UH 0:02:51.760 --> 0:02:55.800 in the bond market only gave two hundred and fifty 0:02:55.800 --> 0:02:59.680 billion dollars worth of issuance of sustainability bonds. Twenty twenty 0:03:00.160 --> 0:03:01.760 was a half a trillion, and this year we're on 0:03:01.800 --> 0:03:05.239 our way to a trillion. We need more government framework 0:03:05.320 --> 0:03:08.079 to get the infrastructure build that we need. We need 0:03:08.120 --> 0:03:11.400 infrastructure build to see quest of carbon dioxide. We need 0:03:11.440 --> 0:03:15.760 the infrastructure build to get hydrogen from where it's produced 0:03:16.000 --> 0:03:18.680 to where it's needed. And I think that's the challenge 0:03:19.000 --> 0:03:21.639 to decarbonize in the country. Do devetail this at into 0:03:21.680 --> 0:03:24.919 your call on oil? Have we seen peak oil demand 0:03:25.040 --> 0:03:27.880 already or do you foresee that upcoming in the next 0:03:27.960 --> 0:03:31.359 few years. We don't think that there's a peak oil 0:03:31.400 --> 0:03:33.320 demand yet, but we think it's coming. There's a bit 0:03:33.320 --> 0:03:35.520 of a debate on it. The question to us is 0:03:35.560 --> 0:03:37.960 really a question of when we were on a track 0:03:38.160 --> 0:03:41.160 to hit a hundred and ten million barrels a day 0:03:41.200 --> 0:03:45.320 of demand all else sequels by UM and because of 0:03:45.400 --> 0:03:48.720 policy is already put in place, not because of the pandemic, 0:03:48.800 --> 0:03:51.240 but because really off the policy is put in place 0:03:51.240 --> 0:03:54.160 by China, the US, and Europe that will be at 0:03:54.160 --> 0:03:56.960 at the most probably a hundred and seven million a day, 0:03:57.040 --> 0:03:59.040 and we think that the policies that are unfolding, we'll 0:03:59.040 --> 0:04:01.960 get it to a hundred and war So the pace 0:04:02.000 --> 0:04:04.920 of growth of oil demand, the elasticity of demand for 0:04:04.960 --> 0:04:08.240 oil to GDP is really falling much more rapidly than 0:04:08.280 --> 0:04:11.880 people thought, which puts us really into getting to that 0:04:11.920 --> 0:04:15.040 peak oil demand period UH into the early part of 0:04:15.080 --> 0:04:18.040 the next decade. This is part of the confusing backdrop, 0:04:18.200 --> 0:04:20.560 the list of unknowns that you lay out as we 0:04:20.600 --> 0:04:24.000 look at oil prices currently w W T I sixty 0:04:24.040 --> 0:04:28.239 five dollars and sixty one sends the path of change. 0:04:28.279 --> 0:04:31.240 People were talking just two months ago of hundred dollars 0:04:31.279 --> 0:04:34.880 a barrel of oil foreseeable the next few months. Could 0:04:34.960 --> 0:04:39.000 we still be there or has the scenario changed now? 0:04:39.080 --> 0:04:41.080 I think the scenario has not changed. What we're seeing 0:04:41.160 --> 0:04:45.200 is a lumpy reaction to UH. Two things that might 0:04:45.240 --> 0:04:48.440 happen UH we just look at the supply and demand balances. 0:04:48.520 --> 0:04:52.680 Inventories are drawing at a record rate, uh that, And 0:04:52.839 --> 0:04:54.840 and they're drawing at a higher rate this month than 0:04:54.839 --> 0:04:57.440 they were last month, and we think that next month 0:04:57.480 --> 0:04:59.720 it will still be at a higher rate. So inventories 0:04:59.720 --> 0:05:02.440 are really tight. They're tighter than where the price of 0:05:02.480 --> 0:05:06.040 oil is today. And that's because financial flows have gotten 0:05:06.040 --> 0:05:08.880 a little bit short, a little bit prematurely, partly because 0:05:08.920 --> 0:05:11.279 of the discussion you were having a little earlier, partly 0:05:11.560 --> 0:05:14.000 on the basis of an assumption that rates are going 0:05:14.040 --> 0:05:16.240 to go up and growth is going to go down. 0:05:16.920 --> 0:05:19.440 But really the market, if you look at a snapshot 0:05:19.520 --> 0:05:21.800 of the here and now, is a very tight market. 0:05:21.920 --> 0:05:25.040 So we think prices are going to go up again 0:05:25.160 --> 0:05:28.599 to the to the mid to high seventies before before 0:05:28.640 --> 0:05:31.440 we have the regime he was talking about coming in. 0:05:31.680 --> 0:05:34.600 At eight years ago, you and Anthony u and wrote 0:05:34.600 --> 0:05:39.119 a really important, widely acclaimed document on China and coal, 0:05:39.839 --> 0:05:42.600 and you said, look, at some point this ends, give 0:05:42.680 --> 0:05:45.719 us an update right now on what to me seems 0:05:45.760 --> 0:05:49.360 to be the global elephant in the room in commodities, 0:05:49.760 --> 0:05:55.039 China and coal. What's two thousand twenty five look like. Well, 0:05:55.080 --> 0:05:57.160 we still think that it's gonna look better. I mean, 0:05:57.200 --> 0:06:01.240 the China issue has never been of climate change. It's 0:06:01.279 --> 0:06:06.120 been one of pollution, and under social policies, the government 0:06:06.160 --> 0:06:09.800 has to deliver clean air and clean water UM and 0:06:09.839 --> 0:06:13.279 they're going about as fast as you can go to 0:06:13.400 --> 0:06:18.080 use every means possible to electrify the country to move 0:06:18.200 --> 0:06:21.760 off the fossil fuels. But they just can't do it 0:06:22.160 --> 0:06:25.240 fast enough. And that's given rise to UH to more 0:06:25.320 --> 0:06:30.360 coal demand. That coal demand vote recognize as higher BTU content, 0:06:30.720 --> 0:06:34.240 lower sulfur emission content UH coal. So it's not not 0:06:34.400 --> 0:06:39.279 all that bad. But yes, the China push in the 0:06:39.440 --> 0:06:43.919 post pandemic revival has put a great stress on the 0:06:43.920 --> 0:06:47.440 growth of power generation and you can see it not 0:06:47.480 --> 0:06:51.159 only in coal but in UH but in other fossil 0:06:51.200 --> 0:06:54.719 fuels and natural gas in particular that will slow down 0:06:54.960 --> 0:06:58.160 as the economy changes and more exchanges. So much greatly, 0:06:58.200 --> 0:07:01.120 greatly appreciate it. Really look forward to an important definitive 0:07:01.160 --> 0:07:04.599 deck from City Group on commodities UH in oil here 0:07:05.160 --> 0:07:12.160 in September Israel, let's turn out to Bill Lee Milkins, 0:07:12.200 --> 0:07:14.560 the chief chief economist. Bill, let's stand right here, how 0:07:14.680 --> 0:07:18.080 much progress. Have we just made towards substantial progress at 0:07:18.120 --> 0:07:20.920 the Federal Reserve. Everyone's trying to figure out how much 0:07:20.920 --> 0:07:23.000 pressure there is in that labor market, and those good 0:07:23.080 --> 0:07:25.280 numbers on Priday really went a long way to giving 0:07:25.280 --> 0:07:27.800 a positive picture. One thing that I should point out, 0:07:27.880 --> 0:07:30.240 and maybe Leasa has already pointed out, is that most 0:07:30.240 --> 0:07:32.640 of the wage gains that we're worried about really go 0:07:32.680 --> 0:07:35.200 into the low wage workers. The Atlanta Wage Tracker has 0:07:35.200 --> 0:07:37.960 shown that the first quartile is getting all the wage gains, 0:07:37.960 --> 0:07:40.640 but the fourth quartile, the higher paid workers, are actually 0:07:40.680 --> 0:07:44.040 having a very steady uh set of wage increases. And 0:07:44.400 --> 0:07:47.840 the job gains are really in those entry level jobs 0:07:48.120 --> 0:07:51.200 where they're missing people because people have actually upgraded themselves. 0:07:51.240 --> 0:07:53.080 So when you actually look at how much prgress we've 0:07:53.080 --> 0:07:54.960 made in the land market, we've done a lot to 0:07:55.000 --> 0:07:58.640 restore the hospitality and leisure industry, yes, but those are 0:07:58.840 --> 0:08:02.120 the low wage sectors and they should be getting higher wages. 0:08:02.320 --> 0:08:05.640 That a lot of productivity gains, though, have come about 0:08:05.720 --> 0:08:08.920 where companies have really eliminated a lot of these jobs, 0:08:09.040 --> 0:08:11.800 and we're gonna find a lot of people not getting jobs. 0:08:11.920 --> 0:08:14.440 And the FED is really concerned with not maximum employment, 0:08:14.520 --> 0:08:17.640 but the maximum extent of employment. And that's where we're 0:08:17.640 --> 0:08:19.680 going to see the tension at the FED. The hawks 0:08:19.720 --> 0:08:21.520 are gonna say a lot of progres has been made, 0:08:21.680 --> 0:08:25.000 but I think the chair and law brainer, the possible 0:08:25.040 --> 0:08:27.320 next chair is going to be saying, you know, we 0:08:27.400 --> 0:08:29.560 still have a lot way to go to maximize the 0:08:29.560 --> 0:08:33.440 extent of employment gains. You nail the zeitgeist right now. 0:08:33.520 --> 0:08:35.960 Greg Valier writes it up in This Morning No where 0:08:36.000 --> 0:08:40.400 nothing else matters but perceived or future wage inflation. And 0:08:40.440 --> 0:08:46.040 then you go to productivity. Could we observe productivity in 0:08:46.120 --> 0:08:48.520 real time? Don't we have to wait to see if 0:08:48.520 --> 0:08:51.560 it happened? Well, tom As you know, it's the hardest 0:08:51.559 --> 0:08:53.720 thing to measure, especially in the service sector, which the 0:08:53.760 --> 0:08:56.480 largest sectors in our economy. But one thing to keep 0:08:56.520 --> 0:08:59.400 in mind is that the federal government has decided to 0:08:59.760 --> 0:09:03.760 balance is budget or or come raised revenues by corporate taxes. 0:09:03.840 --> 0:09:06.360 What's that gonna do. Cut back on investment and cut 0:09:06.360 --> 0:09:09.560 back on these prouctivity enhancing investments. We need to keep 0:09:09.600 --> 0:09:12.719 inflation in check. So I think the real danger is 0:09:12.960 --> 0:09:15.280 that we'll look at where prices are going and we 0:09:15.320 --> 0:09:19.199 see these low wage, low proctivity jobs dominate the wage increases, 0:09:19.440 --> 0:09:21.360 and we don't have the offset coming in from the 0:09:21.440 --> 0:09:25.480 high prouctivity kind of investments that that balance off the 0:09:25.480 --> 0:09:27.880 the the high pressure from wages. So what does this 0:09:27.920 --> 0:09:29.920 mean in terms of FED policy and what you think 0:09:30.000 --> 0:09:33.120 it will be in the months ahead versus what you 0:09:33.120 --> 0:09:36.760 think it should be. I think Chair poll And and 0:09:36.840 --> 0:09:39.520 most of the fom C is still concerned that once 0:09:39.559 --> 0:09:42.800 we get past these bottleneck price increases, where to come 0:09:42.800 --> 0:09:46.080 back to the world Where is deflationary pressure? If we 0:09:46.160 --> 0:09:48.360 have the kind of productivity games we've seen in the 0:09:48.400 --> 0:09:50.880 last two or three years, but if the corporate tax 0:09:50.960 --> 0:09:52.960 increases that being put in place, not just the US 0:09:53.200 --> 0:09:56.199 but around the world start to cut into the kind 0:09:56.200 --> 0:10:00.160 of investments we need to keep productivity up, then we're 0:10:00.160 --> 0:10:02.800 going to have a serious inflation problem. And as you mentioned, 0:10:02.840 --> 0:10:06.160 a stagflation problem where growth it starts to to to 0:10:06.840 --> 0:10:09.600 hit that that uproad bound of it maybe half a 0:10:09.600 --> 0:10:12.120 percent to one percent, and we start to see price 0:10:12.200 --> 0:10:14.520 continue to rise. But we got to talk about China then, 0:10:14.880 --> 0:10:16.839 how big is China and what's got gone right now 0:10:17.200 --> 0:10:20.880 effect and what you're discussing. I think that's absolutely critical 0:10:20.880 --> 0:10:23.360 because everyone is looking at China as leading indicator for 0:10:23.400 --> 0:10:26.920 where we're going. China came out of COVID fairly early, 0:10:27.400 --> 0:10:30.400 but right now they're suffering the consequences of their policies, 0:10:30.400 --> 0:10:33.000 which is, every time they see a rise in cases, 0:10:33.160 --> 0:10:36.400 they shut down the economy, and that kills any kind 0:10:36.440 --> 0:10:38.679 of growth. And right now the fear is that the 0:10:38.720 --> 0:10:41.079 delta variant is going to cause China to shut down 0:10:41.200 --> 0:10:44.319 yet again and and cause growth to fall away below 0:10:44.320 --> 0:10:46.880 where their plan targets are. You see the Central Bank 0:10:47.000 --> 0:10:49.680 and the fiscal authorities putting in place a lot of 0:10:49.720 --> 0:10:54.239 insurance policies to bolster any kind of fault fallback in consumption, 0:10:54.440 --> 0:10:56.280 which is really the weakest sector in China right now. 0:10:56.440 --> 0:10:59.360 Is there a track record that shows they can do that. 0:10:59.480 --> 0:11:04.199 Can they succeed in policy to boost and sustain consumption. 0:11:05.200 --> 0:11:07.640 One advantage of a command economy is they'll be able 0:11:07.679 --> 0:11:10.920 to boost public consumption, But the disadvantage is that people 0:11:10.960 --> 0:11:12.840 don't have the contents that it's really safe to go 0:11:12.880 --> 0:11:15.360 back to work, and people will not be going out 0:11:15.400 --> 0:11:18.319 to the restaurants. The people in the cities of Shanghai, Kwandong, 0:11:18.760 --> 0:11:20.520 and shen jen are going to say at home and 0:11:20.559 --> 0:11:22.960 say it's not safe to go out. So so we 0:11:23.080 --> 0:11:26.480 have a split in China where public consumption public investment 0:11:26.679 --> 0:11:29.319 is pushing like crazy there they're financing with a lot 0:11:29.320 --> 0:11:32.000 of debt, but the private sector really isn't following through. 0:11:32.200 --> 0:11:34.600 Belt gret ahead from you as always William Lea, There 0:11:34.720 --> 0:11:42.480 Milk and Institute chief Economists. Let's bringing Brian Levitt, invest 0:11:42.520 --> 0:11:45.560 Go Global Market strategist. Brian. I'll characterize your view for 0:11:45.720 --> 0:11:48.199 you just briefly, and then you can give me the latest. 0:11:48.280 --> 0:11:50.400 I understand you're looking for that return to trend growth 0:11:50.840 --> 0:11:53.480 through next year, we'll make that progress towards trend, and 0:11:53.520 --> 0:11:56.119 you're looking for growth to take over in terms of leadership. 0:11:56.360 --> 0:11:59.040 Any challenge to that from the data over the past Wait, Brian, 0:12:00.200 --> 0:12:02.960 I think maybe over some weeks, but not necessarily over 0:12:03.040 --> 0:12:05.480 some years. So, Jonathan, when you think of where the 0:12:05.520 --> 0:12:08.040 tenure was at one twelve, that and a move back 0:12:08.120 --> 0:12:12.199 up to I wouldn't be surprised to see further improvements 0:12:12.240 --> 0:12:15.680 in this economy as we get more American adults vaccinated 0:12:15.720 --> 0:12:19.080 and so should rates be at probably not um could 0:12:19.120 --> 0:12:21.440 they be somewhat higher than here? Yeah? And in that 0:12:21.559 --> 0:12:24.880 environment than cyclicals and value oriented parts of the market 0:12:24.880 --> 0:12:28.720 will do well. My point is to say that we're 0:12:28.960 --> 0:12:33.559 ultimately going to stabilize to a more modest growth rate. 0:12:33.760 --> 0:12:39.520 It's nothing structural change. We had a disastrous coronavirus driven recession, 0:12:39.840 --> 0:12:43.920 we recovered from it, and we're navigating around getting back 0:12:43.920 --> 0:12:46.360 to a more stable level of growth. So my view is, 0:12:46.400 --> 0:12:49.400 as you're looking out beyond the next week, so the 0:12:49.440 --> 0:12:52.920 next couple of quarters, start to contemplate what the structural 0:12:52.920 --> 0:12:55.160 picture looks like, and it should continue to be a 0:12:55.720 --> 0:12:58.680 modest growth environment. Okay, fine, it's a modest growth environment. 0:12:58.720 --> 0:13:01.120 Michael Darter agrees with your A M Camp partners in 0:13:01.240 --> 0:13:04.760 this morning. Note great, Brian, what's it mean for corporations? 0:13:04.800 --> 0:13:08.199 I mean life goes on state where the gloom crew 0:13:08.280 --> 0:13:12.040 has it wrong. So what it means is that grow 0:13:12.520 --> 0:13:14.679 very similar Tom to what you saw from the middle 0:13:14.679 --> 0:13:19.040 of eleven through the end of is that growth is 0:13:19.080 --> 0:13:21.880 strong enough to be supportive of corporate earnings, but it's 0:13:21.960 --> 0:13:26.800 not so strong that it leads to big excess significant inflation, 0:13:27.080 --> 0:13:29.920 you know, meaningful fed tightening. So it creates a cycle 0:13:30.000 --> 0:13:33.520 that could go on for some time now, some corporations 0:13:33.520 --> 0:13:35.880 will be better position for this than others. If you're 0:13:36.000 --> 0:13:39.080 a structurally advantage growth business in order what we saw 0:13:39.120 --> 0:13:41.440 in the last cycle, you're likely to benefit from it. 0:13:41.559 --> 0:13:45.760 If you're the type of business that requires higher sustained 0:13:46.000 --> 0:13:51.400 economic activity, then you're unlikely to receive a fancy multiple 0:13:51.400 --> 0:13:53.320 on the type of earnings that you're able to generate. 0:13:53.480 --> 0:13:55.960 As an investor. Do you like this kind of chart 0:13:56.000 --> 0:13:58.120 that liz Ane Saunders of Charles Schwab put out this 0:13:58.160 --> 0:14:01.319 morning showing that share buybacks in the United States, if 0:14:01.320 --> 0:14:03.920 the SMP five hundred are running it near the fastest 0:14:03.960 --> 0:14:06.880 pace ever, almost eclipsing two thousand and eighteen. Is that 0:14:06.920 --> 0:14:10.040 a good thing from your perspective? Well, it certainly tells 0:14:10.120 --> 0:14:12.880 us that businesses are flushed with cash, and it it 0:14:13.000 --> 0:14:16.360 certainly tells us that, um, you know, it's certainly a 0:14:16.400 --> 0:14:18.800 tail wind to markets. Now would I would I rather 0:14:18.960 --> 0:14:21.720 see you know, more businesses use that money to put 0:14:21.720 --> 0:14:26.320 into productive use. Sure, but it's indicative of a corporate 0:14:26.400 --> 0:14:30.320 environment that's probably thinking similarly along the same lines that 0:14:30.400 --> 0:14:33.600 I'm thinking. Is that you know, there's we're not going 0:14:33.640 --> 0:14:37.600 into a robust growth environment and and they're deploying cash 0:14:37.680 --> 0:14:39.520 in a way that they think is appropriate. As a 0:14:39.520 --> 0:14:41.480 result of that, I do want to rosa brant to 0:14:41.560 --> 0:14:44.080 what degree those bond backs were delayed from last year 0:14:44.080 --> 0:14:47.840 into this year. Trip Absolutely, I agree with that that's 0:14:47.840 --> 0:14:50.400 going to be initially, Lisa. Going forward from here, how 0:14:50.400 --> 0:14:52.640 can we really take this year's dated for things like 0:14:52.720 --> 0:14:55.160 buy backs and capital returns after the year that we've 0:14:55.200 --> 0:14:56.960 just had. Yeah, but why do they have money now 0:14:57.320 --> 0:14:59.800 from after a year like last year? They have it 0:15:00.000 --> 0:15:02.040 because they borrowed all this money and they're using some 0:15:02.120 --> 0:15:03.920 of that borrowed money to do the shared buyback. So 0:15:03.960 --> 0:15:06.440 I agree with you it is deferred. However, the fact 0:15:06.520 --> 0:15:08.200 that we can just go right back to our old 0:15:08.240 --> 0:15:10.400 plans for a huge gap in the middle of what 0:15:10.480 --> 0:15:12.000 we missed, you know a better the most that a 0:15:12.040 --> 0:15:13.600 lot of the money that's been raised in the market 0:15:13.640 --> 0:15:17.640 has been for refinancing in credit, that the debt pounds 0:15:17.640 --> 0:15:19.880 of some of these companies they've pushed the maturities out, 0:15:20.080 --> 0:15:22.800 the lower rates and leverage ratios aren't moving in the 0:15:22.800 --> 0:15:25.400 wrong direction. They're moving in the right direction, all right. 0:15:25.440 --> 0:15:27.120 So Brian, can you weigh in on that, because right 0:15:27.120 --> 0:15:29.320 now we're seeing that. Certainly in the investment rate universe. 0:15:29.480 --> 0:15:31.520 It's a little bit different though in the hig yield universe, 0:15:31.560 --> 0:15:34.640 isn't it. Well Yeah, but again, for the most part, 0:15:34.680 --> 0:15:38.200 these businesses are borrowing this money at very low interest rates. 0:15:38.200 --> 0:15:40.680 And the Jonathan's point, they've pushed these maturities out, so 0:15:40.720 --> 0:15:44.000 you're not looking at a wall of maturity. Um, you're 0:15:44.040 --> 0:15:46.960 not looking at a very onerous interest burden for a 0:15:46.960 --> 0:15:48.640 lot of these businesses. I mean, it's pretty similar to 0:15:48.680 --> 0:15:51.840 households for those of us that refinanced. Um. You know, 0:15:51.920 --> 0:15:54.880 you you take advantage of these opportunities when they come 0:15:54.920 --> 0:15:57.560 to you. Brian the f A mode I'm Bloomberg tells 0:15:57.560 --> 0:16:00.360 you a lot about use of cash, about or buy 0:16:00.400 --> 0:16:02.640 back just as one example. And I don't mean to 0:16:02.680 --> 0:16:05.400 pick on Amazon other than that their capex is. You know, 0:16:05.480 --> 0:16:07.880 nobody can get a handle on the amount of money 0:16:07.880 --> 0:16:11.040 Amazon is spending to grow, grow, grow. But from two 0:16:11.080 --> 0:16:14.520 thousand nineteen is the last normal year, there's something on 0:16:14.560 --> 0:16:17.000 the order of published free cash flow of twenty two 0:16:17.040 --> 0:16:20.600 billion growing out to twenty five billion, and then you 0:16:20.640 --> 0:16:23.720 skip eighteen months or whatever because of the pandemic and 0:16:23.760 --> 0:16:27.000 the new working number. In the future is forty five 0:16:27.200 --> 0:16:32.240 billion and now Amazon's Amazon. But that permeates through the 0:16:32.280 --> 0:16:36.800 invest system, doesn't it. It does, And again it's back 0:16:36.840 --> 0:16:39.720 to talking about these advantage businesses and these businesses that 0:16:39.720 --> 0:16:42.440 can generate cash flow and these types of an environment. 0:16:42.560 --> 0:16:45.080 And and if you think about where we are, Yeah, 0:16:45.200 --> 0:16:50.560 corporations have used the low um interest rate environment to 0:16:50.640 --> 0:16:53.520 borrow money. But also think about what's going on in 0:16:53.560 --> 0:16:56.280 the earnings picture. It's not as if this hasn't been 0:16:56.720 --> 0:16:59.840 a good fundamental story for businesses. We're coming through a 0:17:00.120 --> 0:17:04.080 very robust earnings quarter um as pent up, the man 0:17:04.119 --> 0:17:06.240 came back into the economy. I don't think that we 0:17:06.280 --> 0:17:10.000 don't continue to see earnings and grow at these at 0:17:10.040 --> 0:17:13.879 these levels. But you know, back to my original point, 0:17:13.920 --> 0:17:17.640 a more stable growth environment can still be very supportive 0:17:17.640 --> 0:17:19.639 of corporate earnings. It can still be very supportive of 0:17:19.680 --> 0:17:22.560 those businesses that can generate cash flo Brian gotta cash 0:17:22.600 --> 0:17:25.280 out with you as Oise. Brian left invest Global Markets 0:17:25.280 --> 0:17:32.919 Stratagistic Claudia sam joins us now at Jane Family Institute. 0:17:33.240 --> 0:17:36.880 With exceptionally important Twitter flow, you can really learn a lot, 0:17:37.200 --> 0:17:42.080 a lot, particularly on the micro economic foundations of all 0:17:42.160 --> 0:17:45.120 this blather we talk about each and every day, Claudia, 0:17:45.160 --> 0:17:46.440 I want to go to the heart of the matter 0:17:46.560 --> 0:17:50.480 right now, shock and awe. If you raise wages, good 0:17:50.520 --> 0:17:54.960 things happen, like consumption sustains. Tell us where we are 0:17:55.000 --> 0:17:59.120 now in the to raise wages. Yeah, So I think 0:17:59.160 --> 0:18:03.680 we've seen a lot of encouraging progress, frankly surprising. I mean, 0:18:03.720 --> 0:18:07.320 after years and years of low wage growth and really 0:18:07.320 --> 0:18:09.960 tough conduct like, we're seeing it so we know it 0:18:10.080 --> 0:18:13.760 is possible. What I want to underscore is we do 0:18:13.840 --> 0:18:17.680 not have the headwinds to keep this going. Right. We've 0:18:17.680 --> 0:18:21.800 had reopening, the vaccination starting, we had people wanting to 0:18:21.800 --> 0:18:25.159 get back outside and see family. Government put money in 0:18:25.200 --> 0:18:28.800 people's pockets like that. Relief is running out. That low 0:18:28.880 --> 0:18:32.600 hanging fruit of opening up is running out, so or 0:18:32.840 --> 0:18:35.880 at least soften right, So then it's a big question 0:18:36.000 --> 0:18:38.879 do we keep these wage gains? How do we do 0:18:38.920 --> 0:18:41.440 it from a policy basis? I mean, you know, we're 0:18:41.800 --> 0:18:43.879 we're warning the death of Richard Trump at E. J. 0:18:43.960 --> 0:18:46.800 Dione with that wonderful essay today in the Washington Post, 0:18:46.880 --> 0:18:50.960 and there's talk about labor share finally regrabbing something from 0:18:51.000 --> 0:18:54.040 the era from Ronald Reagan forward. Do you buy a 0:18:54.119 --> 0:18:58.560 policy shift or not? So I've argued that we are 0:18:58.600 --> 0:19:02.119 seeing a sea change in monetary and fiscal policy. I 0:19:02.160 --> 0:19:04.439 really do feel the Fed as well, on its way 0:19:04.440 --> 0:19:08.120 to its new framework, thinking harder about its dual mandate 0:19:08.520 --> 0:19:13.239 jobs too. I am more concerned about what's happening on 0:19:13.320 --> 0:19:16.960 the hill right We're seeing an infrastructure packet, which is amazing. 0:19:17.000 --> 0:19:20.320 We've had years of waiting for infrastructure week. It's really happening. 0:19:20.760 --> 0:19:23.800 And yet that's not We have an over twenty trillion 0:19:23.840 --> 0:19:27.560 dollar economy, one trillion dollars over ten years in our 0:19:27.680 --> 0:19:31.080 like productive capacity. That's not much. And what I really 0:19:31.080 --> 0:19:33.200 want to see, and what we learn from putting money 0:19:33.240 --> 0:19:36.680 in people's pockets is if we extend the child allowance, 0:19:36.720 --> 0:19:39.840 if we invest in our next generation, that's where the 0:19:39.880 --> 0:19:44.320 payoffs will come. And it's really not guaranteed that we're 0:19:44.320 --> 0:19:46.320 going to see that. Well, that's what we need for 0:19:46.440 --> 0:19:50.240 long term growth and long term support of workers, Claudia. 0:19:50.280 --> 0:19:52.639 In the meantime, it is countdown to Wednesday, where we 0:19:52.640 --> 0:19:55.240 get the latest Consumer price index, the read on how 0:19:55.359 --> 0:19:58.800 much prices for the average consumer are going up, and 0:19:58.840 --> 0:20:01.480 they are going up, and staples and aspects and things 0:20:01.480 --> 0:20:04.439 that people buy every day. Can you give us a 0:20:04.480 --> 0:20:07.240 sense of what you think the Fed's response should be 0:20:07.400 --> 0:20:10.359 of this, because frankly, it is the most onerous for 0:20:10.440 --> 0:20:14.560 the lowest income Americans, right. So I think the FED 0:20:14.720 --> 0:20:16.840 has been right about this from the start. I think 0:20:16.840 --> 0:20:19.480 the data is coming in in terms of team transitory 0:20:19.600 --> 0:20:22.600 is winning here. We know that the factors if you 0:20:22.640 --> 0:20:26.600 look under the hood, the factors of this extraordinary jump 0:20:26.640 --> 0:20:28.840 in prices, like I don't want to underscore the pain 0:20:28.880 --> 0:20:31.520 that this cost, but these are not things that are 0:20:31.520 --> 0:20:34.400 staying with us. I mean, just the use motor vehicles, 0:20:34.440 --> 0:20:37.280 Like those prices are coming back down, right, we should 0:20:37.400 --> 0:20:40.320 not change course and abandon the millions of workers who 0:20:40.359 --> 0:20:43.159 are not back to work just because we're going to 0:20:43.280 --> 0:20:46.520 have six months of prices that moved up faster than 0:20:46.520 --> 0:20:49.239 we expected. So I think it's just it would be 0:20:49.320 --> 0:20:53.760 so wrong to change course on some CPI numbers, and 0:20:54.080 --> 0:20:55.960 a lot of people would agree with you, Claudia, But 0:20:56.000 --> 0:20:59.800 then they pair that with this increase, this divergence between 0:21:00.200 --> 0:21:03.520 UH the wealthiest individuals and the lowest income individuals, especially 0:21:03.560 --> 0:21:06.280 because asset prices have been one of the most inflated 0:21:06.359 --> 0:21:08.840 areas of the economy, and so frankly, a lot of 0:21:08.840 --> 0:21:11.879 people say the Fed's policies have only widened this divide. 0:21:12.200 --> 0:21:15.480 How can you say, Okay, well maybe so, but it's 0:21:15.520 --> 0:21:19.360 worth it. Yeah, I am extremely frustrated with how much 0:21:19.400 --> 0:21:22.840 focus the FED is getting right now. We need Congress 0:21:22.920 --> 0:21:26.560 to act. There are ways to address wealth inequality and 0:21:26.600 --> 0:21:30.679 the FED does not have them right. And there there's taxes, 0:21:31.040 --> 0:21:34.639 there are transfers. The FED cannot go this alone. And 0:21:34.680 --> 0:21:37.840 the idea that raising interest rates a couple you know, 0:21:37.960 --> 0:21:40.679 basis points quarter basis points is going to fix a 0:21:40.800 --> 0:21:45.080 longstanding problem in the US economy. It's ludicrous, right, Like 0:21:45.119 --> 0:21:48.200