WEBVTT - Surveillance: Citi's Hollenhorst Weighs 2020 Risks 0:00:02.640 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.479 Bloomberg dot Com, and of course on the Bloomberger. Let's 0:00:27.520 --> 0:00:30.760 take a look at the economy, shall we. We have 0:00:30.880 --> 0:00:33.960 the consumer very strong, we had retail sales. Looks like 0:00:33.960 --> 0:00:35.839 the holiday retail sales are gonna come in about three 0:00:35.840 --> 0:00:38.840 and a half percent growth year over year. That looks 0:00:39.840 --> 0:00:42.280 very strong for the U S conserner. We've seen that before. 0:00:42.280 --> 0:00:44.960 We strong job numbers, strong retail sales. It's got a 0:00:45.000 --> 0:00:47.760 sense of whether that will continue to push us in 0:00:48.560 --> 0:00:51.880 Andrew Holland Horst, he's the chief US economist for City. 0:00:51.920 --> 0:00:54.080 He joins us here on a Bloomberg Interactive broker studio. 0:00:54.320 --> 0:00:56.360 He just did a stint on Bloomberg Television. So we 0:00:56.400 --> 0:00:58.720 are working Andrew hard today. Andrew, thanks so much for 0:00:58.840 --> 0:01:02.400 joining us. What is your thought for I mean, the 0:01:02.520 --> 0:01:05.240 consumer and the US economy seem to be kind of 0:01:05.319 --> 0:01:07.680 chugging along here. Yeah, I think it still continues to 0:01:07.720 --> 0:01:10.399 power ahead. I mean, we've had this really positive story 0:01:10.440 --> 0:01:13.039 around what's going on with jobs, what's going on with wages, 0:01:13.640 --> 0:01:16.880 that's supporting incomes and in turn supporting spending. So you know, 0:01:16.959 --> 0:01:20.080 historically low unemployment rate. These are all the kind of 0:01:20.120 --> 0:01:22.280 elements that you need for a strong consumer economy that 0:01:22.560 --> 0:01:24.480 more concerned about what's going on in other places in 0:01:24.520 --> 0:01:26.520 the economy. But the consumer, if you just focus on 0:01:26.560 --> 0:01:30.440 that very very strong, what can break the streak. So 0:01:30.880 --> 0:01:33.400 a few things that we were worried about in nineteen 0:01:33.440 --> 0:01:36.360 that you would still think about going into One is 0:01:36.760 --> 0:01:38.920 do you get a big correction in risk assets And 0:01:39.000 --> 0:01:40.880 we don't think that will happen, but if you were 0:01:40.920 --> 0:01:42.640 to get a big drop then we saw that at 0:01:42.680 --> 0:01:45.839 the end of eighteen going into twenty nineteen and consumers 0:01:45.840 --> 0:01:48.040 pulled back. So if we get a big drop in 0:01:48.120 --> 0:01:50.800 equity markets, that's something that could slow down consumption. The 0:01:50.800 --> 0:01:53.560 other thing that could, of course, always change is the 0:01:53.600 --> 0:01:56.160 positives that we're talking about. If those jobs numbers start 0:01:56.240 --> 0:02:00.280 to slow down, and there was a time in looked 0:02:00.280 --> 0:02:02.920 like maybe they were now as we're going into actually 0:02:02.960 --> 0:02:05.160 looks like they're holding up quite well. Um. But so 0:02:05.320 --> 0:02:08.320 either this kind of pullback and sentiment among consumers that's 0:02:08.320 --> 0:02:10.240 something that we're watching, or do you just get a 0:02:10.240 --> 0:02:12.640 fundamental slowing and job growth. So I listened to you 0:02:12.639 --> 0:02:15.559 on Bloomberg Television earlier today and you said that impeachment 0:02:15.720 --> 0:02:20.160 wasn't necessarily something that would upend the markets, but that 0:02:20.280 --> 0:02:23.560 the election rhetoric could. And I'm wondering, how does that 0:02:23.600 --> 0:02:26.560 play into this kind of healthy economy that we're seeing 0:02:26.639 --> 0:02:29.040 right now. Yeah, so these are the things that are 0:02:29.120 --> 0:02:31.839 much harder to kind of forecast or get your hands 0:02:31.880 --> 0:02:35.200 around as an economist. Um. So, like I was saying, 0:02:35.280 --> 0:02:37.720 you have very different visions that are being presented for 0:02:37.800 --> 0:02:40.079 the U. S. Economy. Of Course that's something that investors 0:02:40.120 --> 0:02:41.600 have to take into account. Of course that's something that 0:02:41.639 --> 0:02:44.680 economists have to take into account. Um, it still looks 0:02:44.760 --> 0:02:47.960 like the modal outcome, the most likely outcome is that 0:02:48.240 --> 0:02:50.800 while the U. S. Economy kind of continues along on 0:02:50.880 --> 0:02:53.840 its current trajectory, which is this, you know, roughly two 0:02:53.840 --> 0:02:56.280 percent growth. But I I think the point I was 0:02:56.320 --> 0:02:58.520 making and we continue to make, is that this will 0:02:58.560 --> 0:03:02.120 be an important theme in twenty twenty investors watching what's 0:03:02.120 --> 0:03:05.400 going on with both the politics between parties and within 0:03:05.440 --> 0:03:07.519 the parties. I'm trying to figure out what this really 0:03:07.520 --> 0:03:09.560 means for the economy. So, Andrew, one of the you 0:03:09.600 --> 0:03:12.880 know that one third of the economy that is manufacturing 0:03:12.960 --> 0:03:17.520 business investment that is weak. We've got the manufacturing sector 0:03:17.680 --> 0:03:20.280 contracting now for several months in a row. Do we 0:03:20.440 --> 0:03:22.360 just kind of ignore that and because the consumer is 0:03:22.360 --> 0:03:25.240 still so strong, Yeah, so definitely don't ignore it. I 0:03:25.280 --> 0:03:27.639 think that is the key downside risk that we want 0:03:27.639 --> 0:03:31.600 to continue watching. UM some positive stories. They're one is 0:03:31.760 --> 0:03:34.040 it looks like and I think it's too early to 0:03:34.080 --> 0:03:35.880 say anything more than it looks like, but it looks 0:03:35.920 --> 0:03:38.920 like globally, maybe the weak manufacturing story is bottomed a 0:03:38.920 --> 0:03:41.640 little bit. You see globally that data starting to turn over, 0:03:41.640 --> 0:03:43.800 and if that continues, UM, then that would be a 0:03:43.840 --> 0:03:47.600 positive dynamic for the US. Also, you have these idiosyncratic 0:03:47.760 --> 0:03:50.440 u S specific issues. You had an auto workers strike 0:03:50.920 --> 0:03:54.920 and you had the grounding of certain aircraft. If production 0:03:55.080 --> 0:03:59.080 picks up as we head into twenty twenty around those 0:03:59.280 --> 0:04:01.600 two store is that could be positive for manufacturing. But 0:04:01.640 --> 0:04:05.480 particularly on the airplane story, that keeps getting pushed further 0:04:05.520 --> 0:04:07.640 and further out. So yeah, I don't even know how 0:04:07.680 --> 0:04:10.760 we Maybe I guess My question is, how do you 0:04:10.840 --> 0:04:12.760 kind of account for that of economist account for that, 0:04:12.840 --> 0:04:14.960 because I think about the supply chain for Boeing, it 0:04:15.080 --> 0:04:17.760 just kind of stretches coast to coast and you know, 0:04:17.800 --> 0:04:20.279 a whole host of industries. Yeah, it's it's definitely a 0:04:20.320 --> 0:04:23.920 macroeconomically significant issue. This is not you know, some small 0:04:24.000 --> 0:04:27.240 company's specific issue. It really matters for the US economy 0:04:27.640 --> 0:04:30.360 UM and that supply chain is really important. So when 0:04:30.480 --> 0:04:34.880 you know, we're talking about a shutdown of production in January, UM, 0:04:34.920 --> 0:04:38.840 but then does the supply chain actually continue to produce? 0:04:38.960 --> 0:04:42.040 If the supply chain continues producing during that time, then 0:04:42.040 --> 0:04:45.880 you're not producing final completed aircraft, but you still are 0:04:45.920 --> 0:04:49.680 keeping those workers employed in the supply chain. You're producing 0:04:49.760 --> 0:04:53.680 parts that ultimately go into those final aircraft, so that 0:04:53.680 --> 0:04:56.359 can kind of support demand while we wait for a 0:04:56.440 --> 0:04:59.040 full restarting of production, which should happen at some point. 0:04:59.120 --> 0:05:01.279 Something we talk a lot of about at this table 0:05:01.440 --> 0:05:05.160 is the impact of automation on jobs. Obviously, the manufacturing 0:05:05.200 --> 0:05:07.599 sector has seen a lot of this. It's floating into 0:05:07.640 --> 0:05:09.400 a lot of other sectors. I cover the banks. We 0:05:09.560 --> 0:05:11.920 see thousands of job cuts around the world, partially in 0:05:11.960 --> 0:05:14.520 the name of automation. When you're thinking of automation, how 0:05:14.560 --> 0:05:17.719 do you factor this into your longer term outlook on 0:05:18.400 --> 0:05:21.800 what happens with jobs and what happens with growth, And 0:05:21.839 --> 0:05:25.080 so this matters so much, and you have to be 0:05:25.160 --> 0:05:28.400 careful because there have been many times in history when 0:05:28.440 --> 0:05:31.200 we've looked at technological advances and said, this is the 0:05:31.320 --> 0:05:33.200 end of labor, this is the end of workers. There's 0:05:33.240 --> 0:05:35.560 gonna be no role for humans, um, And they're always 0:05:35.720 --> 0:05:38.120 has been. But what we need to be very careful 0:05:38.160 --> 0:05:43.000 about with this transition to more automation is that those 0:05:43.040 --> 0:05:47.240 opportunities are created for the existing workforce. So we know, 0:05:47.400 --> 0:05:50.600 as you were mentioning, there are certain industries where it's 0:05:50.640 --> 0:05:52.839 just not going to make sense for humans to be 0:05:52.880 --> 0:05:54.320 doing the jobs that they used to be doing in 0:05:54.360 --> 0:05:58.960 those industries. Um, But are we creating new opportunities? Are 0:05:58.960 --> 0:06:02.920 we creating new engines of growth? So maybe maybe you don't. 0:06:03.200 --> 0:06:05.200 It's not clear yet. It's not clear yet that we are. 0:06:05.279 --> 0:06:06.960 And I think I think that that that is the 0:06:07.360 --> 0:06:10.960 kind of you know, difficulty of navigating this transition. So 0:06:11.200 --> 0:06:13.640 maybe you have less traditional manufacturing jobs, we should have 0:06:13.720 --> 0:06:16.480 more jobs around things like three d printing. Are we 0:06:16.520 --> 0:06:19.159 really seeing those jobs come through? Um, that's what we're 0:06:19.160 --> 0:06:21.320 looking for, and that will be an ultimately positive story 0:06:21.320 --> 0:06:23.480 for the economy if we get there. So, Andrew, we've 0:06:24.120 --> 0:06:26.120 you know, the trade has been such a big, big 0:06:26.160 --> 0:06:29.120 issue for nineteen is kind of faded over the last 0:06:29.160 --> 0:06:30.600 couple of weeks a little bit least, you know, in 0:06:30.680 --> 0:06:33.080 terms of the news flow and the tweet flow. How 0:06:33.080 --> 0:06:36.680 do you kind of gauge the trade uncertainty into your 0:06:37.120 --> 0:06:42.839 economic forecast? For so any uncertainty, and in particular uncertainty 0:06:42.880 --> 0:06:45.600 around trade is something that's gonna tend to hold back investment. 0:06:45.600 --> 0:06:47.320 People are gonna want to wait, They're gonna want to 0:06:47.320 --> 0:06:50.200 see what the actual outcome is. Um. That's true around trade, 0:06:50.200 --> 0:06:55.599 It's true around politics, Brexit, everything. Um. It does seem that, 0:06:55.680 --> 0:06:58.440 at least in a short term sense, we've had a 0:06:58.440 --> 0:07:02.440 decrease in uncertainty. So there's still massive uncertainty about where 0:07:02.480 --> 0:07:04.680 this story goes over the next five years, over the 0:07:04.720 --> 0:07:06.680 next ten years. But as you look out over the 0:07:06.680 --> 0:07:09.880 next six months, it seems like there are at least 0:07:09.880 --> 0:07:11.760 the contours of a Phase one deal that have been 0:07:11.800 --> 0:07:14.640 agreed to. It looks like these agricultural exports are going 0:07:14.720 --> 0:07:17.440 to be restarted. UM. So all of that is short 0:07:17.520 --> 0:07:20.160 term positive and that should helped unleash some of the 0:07:20.240 --> 0:07:23.760 pent up investment that was waiting for some short term 0:07:23.760 --> 0:07:26.040 resolution of uncertainty. Now, do you have a long term 0:07:26.080 --> 0:07:29.160 resolution resolution of uncertainty where you can think about making 0:07:29.320 --> 0:07:31.440 plans for the next five years, the next ten years. 0:07:31.560 --> 0:07:33.720 I think that's a lot less clear. Can I ask 0:07:33.800 --> 0:07:36.720 you also about the Federal Reserve, because I think you 0:07:36.720 --> 0:07:38.440 have a more balanced view than a lot of people 0:07:38.480 --> 0:07:41.560 who believe, yes, this is definitely quey and no, this 0:07:41.640 --> 0:07:45.000 is absolutely not. But can you explain to us how 0:07:45.080 --> 0:07:47.880 much is the is the FED propping up the economy 0:07:47.920 --> 0:07:50.880 more than people realize right now? So there is a 0:07:50.960 --> 0:07:53.240 very important sense in which the FED is important the 0:07:53.400 --> 0:07:58.200 supporting the economy, and that's that's largely through low interest rates. 0:07:58.200 --> 0:08:01.200 And they've achieved low long term interest traits both through 0:08:01.240 --> 0:08:04.560 their bond purchase programs, which I would say, what they're 0:08:04.600 --> 0:08:06.320 doing right now, I would not call it QUI. I 0:08:06.360 --> 0:08:08.200 think many in the market will see it as qua 0:08:08.280 --> 0:08:10.160 when we come back to that in a second. UM. 0:08:10.160 --> 0:08:13.120 But low long term rates, which is partly these que programs, 0:08:13.160 --> 0:08:15.760 but partly just the fact that the Fed is held 0:08:15.840 --> 0:08:18.160 rates relatively low. It looks like the top of this 0:08:18.200 --> 0:08:20.920 interest rate hiking cycle is going to be sub three percent, 0:08:21.280 --> 0:08:23.840 and we're thinking about staying around these levels or maybe 0:08:23.880 --> 0:08:26.360 in the future going down from these levels. So that's 0:08:26.400 --> 0:08:28.360 gonna keep rates low. That's going to support the economy. 0:08:28.440 --> 0:08:31.000 In terms of the specific program, at the end of 0:08:31.000 --> 0:08:33.880 the day, they're buying T bills that's a three month, 0:08:34.000 --> 0:08:37.080 six month liability of the U. S. Government that pays interest. 0:08:37.800 --> 0:08:39.800 They take those T bills out of supply, and they 0:08:39.840 --> 0:08:42.800 add reserves, which are an overnight interest paying liability of 0:08:42.800 --> 0:08:44.240 the U. S. Government. So it's not clear that that's 0:08:44.240 --> 0:08:46.040 really doing much. Okay, so we're not gonna call it 0:08:46.120 --> 0:08:49.199 QUI at this moment. Andrew Holland Horse, thanks so much 0:08:49.200 --> 0:08:52.920 for joining us. Andrews the chief US economists for City. 0:08:52.920 --> 0:08:55.679 We appreciate them coming here to our Bloomberg Interactive Broker 0:08:55.679 --> 0:08:58.280 studio giving us his thoughts for the economy. Again, as 0:08:58.280 --> 0:08:59.640 we just kind of take a look at the most 0:08:59.640 --> 0:09:02.680 recent data point, call it holiday retail sales pretty strong, 0:09:02.960 --> 0:09:06.480 suggesting once again that the consumer is pretty strong, which 0:09:06.559 --> 0:09:08.640 contends once again that the U S economy reigns on 0:09:08.720 --> 0:09:27.240 pretty fair footing. We continue to see really disturbing images 0:09:27.280 --> 0:09:30.080 coming from Hong Kong that the protests they're just so 0:09:30.280 --> 0:09:33.959 no signs of winding down. The persistence, I think, is 0:09:34.000 --> 0:09:36.160 it really amazing to a lot of us who are 0:09:36.320 --> 0:09:39.280 watching these issues. You get the latest cheer. We welcome 0:09:39.360 --> 0:09:42.840 Karen Lee. She has Bloomberg News, a Greater China Government editor. 0:09:43.320 --> 0:09:46.280 She joins us on the phone. Uh, Karen, thanks so 0:09:46.400 --> 0:09:49.040 much for joining us. Give us the latest of what 0:09:49.240 --> 0:09:54.280 is happening in Hong Kong right now. Well, there are 0:09:54.280 --> 0:09:57.719 protests scheduled for tonight in an area called Satan, which 0:09:57.720 --> 0:09:59.920 has seen some of the more violent protester but the 0:10:00.000 --> 0:10:02.480 past six months, and then again over the weekend in 0:10:02.520 --> 0:10:05.240 an area near the Chinese border. UM. And this is 0:10:05.360 --> 0:10:07.680 leading up to a major rally that's been planned for 0:10:07.800 --> 0:10:10.920 New Year's Day organized by the Civil Human Rights Plant, 0:10:10.920 --> 0:10:13.560 which is the organization that's home some of the biggest 0:10:13.600 --> 0:10:19.080 peaceful protests since these demonstrations against China's grips began in June. 0:10:19.440 --> 0:10:21.439 So we're going to be watching over the next few 0:10:21.480 --> 0:10:24.600 days to see what the turnouts like. UM, how big 0:10:24.640 --> 0:10:27.920 the classes between protesters and police, get if there are 0:10:28.000 --> 0:10:30.520 classes at all, and to stands. We can draw a 0:10:30.559 --> 0:10:33.080 new signals from all of this, especially the turnout on 0:10:33.160 --> 0:10:37.280 January first, as to how much momentum this movement sustands 0:10:37.320 --> 0:10:41.120 going into So, Karen, just give us a sense an 0:10:41.200 --> 0:10:44.400 updated view of kind of what the protesters are really 0:10:44.440 --> 0:10:48.280 protesting for right now. It's been months and months and months. 0:10:48.320 --> 0:10:53.440 What kind of change are they really looking for right now? Yeah, Well, 0:10:53.480 --> 0:10:56.200 their demands have shifted a lot over the past six months, 0:10:56.200 --> 0:10:59.640 and this of course began um as blowback against a 0:10:59.720 --> 0:11:04.679 really unpopular extradition law that would have allowed UM transfers 0:11:04.679 --> 0:11:08.160 to mainland China, and it morphed pretty quickly into this 0:11:08.280 --> 0:11:13.000 wider movement against Beijing script and protesters demands in that time. 0:11:13.320 --> 0:11:15.840 It's since that time have changed. Right now, one of 0:11:15.840 --> 0:11:18.400 the biggest demands is not the biggest, is an independent 0:11:18.440 --> 0:11:22.439 inquiry into aggressive behavior by police and their conduct in 0:11:22.559 --> 0:11:25.640 dispersing these protests. Going back to some of those images 0:11:25.679 --> 0:11:27.760 we were talking about with these big clouds of tear 0:11:27.840 --> 0:11:30.640 gas covering over these areas of Hong Kong where you 0:11:30.679 --> 0:11:33.280 never thought you would see tear gas over the city center, 0:11:33.559 --> 0:11:36.360 I'm going again, even on Christmas Eve, over a popular 0:11:36.400 --> 0:11:39.240 shopping area in front of the Peninsula Hotel, which is 0:11:39.280 --> 0:11:42.400 one of the most generated hotels here. UM. During this 0:11:42.640 --> 0:11:46.280 what has been a major shopping season for this economy 0:11:46.320 --> 0:11:49.880 that still runs on tourism and resale. UM. So we're 0:11:49.880 --> 0:11:52.560 going to be looking at the new year really not 0:11:52.640 --> 0:11:55.600 only to see whether this sustains its momentum, but whether 0:11:55.640 --> 0:11:58.480 the demands shift again. UM, and what they shift to. 0:12:00.000 --> 0:12:02.120 You give us a sense of the tone here, because 0:12:02.480 --> 0:12:06.280 over the holiday hundreds were arrested. I'm looking at headlines. Now, 0:12:07.360 --> 0:12:11.800 how much is this really escalating? UM? You know, this 0:12:11.880 --> 0:12:14.240 has really become the new normal in a way for 0:12:14.320 --> 0:12:16.959 this city, at least for parts of it. UM. And 0:12:17.120 --> 0:12:20.880 what we saw on Christmas Eve was not shocking to 0:12:20.960 --> 0:12:24.080 those of us who've been watching it for a while. UM. 0:12:24.160 --> 0:12:27.320 We've become quite used to seeing these kind of clashes 0:12:27.360 --> 0:12:32.079 scattered around town, especially in the area where they happened. UM. 0:12:32.120 --> 0:12:35.400 And we've seen more violence than we saw on Christmas Eve. 0:12:35.440 --> 0:12:39.520 And we've been seeing occasional live ammunition. UM. We've seen 0:12:39.559 --> 0:12:44.200 webberable expired from pretty close range. UM. College campuses turned 0:12:44.240 --> 0:12:47.360 into it looked like battle ground. UM. So really the 0:12:47.400 --> 0:12:50.960 context for Christmas Eves importance was more that it happened 0:12:50.960 --> 0:12:53.000 on the holiday and that it happened in an area 0:12:53.040 --> 0:12:57.199 that nearest past um would have been full of tourists 0:12:57.240 --> 0:12:59.839 and holiday shoppers. UM. In this year, it was a 0:13:00.080 --> 0:13:01.839 of a different picture, and I think for a lot 0:13:01.880 --> 0:13:04.160 of people that really serve to show what's happened to 0:13:04.240 --> 0:13:06.360 the city over the past year and the kind of 0:13:06.480 --> 0:13:09.080 impact that all of this has had on tourism and 0:13:09.120 --> 0:13:11.959 retail UM, so of which have taken a massive hit. 0:13:12.120 --> 0:13:15.000 So UM, we're going to We're going to see what 0:13:15.040 --> 0:13:17.800 happens now on New Year's Day. But really the Sidney 0:13:17.880 --> 0:13:21.520 bracing for a much bigger protests UM in the next 0:13:21.520 --> 0:13:23.839 few days. Well, that was what I was gonna ask. Next. 0:13:23.960 --> 0:13:28.719 What can we expect on January one? UM, Well, this 0:13:28.840 --> 0:13:31.800 protest is being organized by the Similar Human Rights Front. 0:13:31.960 --> 0:13:35.040 It is the organization that has brought millions of people 0:13:35.080 --> 0:13:38.280 out onto the street UM at various points throughout all 0:13:38.280 --> 0:13:40.880 of this. They organized the huge marches earlier in the 0:13:40.920 --> 0:13:43.080 summer that really kicked this movement off and got it 0:13:43.080 --> 0:13:45.800 in the global headlines. UM. And they're still waiting for 0:13:45.800 --> 0:13:48.800 a police permit to march UM. They don't have that yet, 0:13:48.880 --> 0:13:51.680 but even if they don't, we think that people will 0:13:51.720 --> 0:13:54.560 still probably come out and they'll protest illegally and there 0:13:54.559 --> 0:13:57.520 will be more arrest UM. So we're going to be 0:13:57.559 --> 0:14:00.200 looking to see what the turnout is and they they've 0:14:00.360 --> 0:14:04.480 they've generally get much figure furn out UM than other 0:14:04.640 --> 0:14:10.199 protests organized by other UM either opposition groups or or activists. 0:14:10.240 --> 0:14:12.240 So UM, and this is going to happen on a 0:14:12.320 --> 0:14:15.960 day when before off here UM people might want to 0:14:16.000 --> 0:14:18.640 send a signal that they do you intend to fight 0:14:18.720 --> 0:14:21.040 into and if they want to do that, this is 0:14:21.080 --> 0:14:22.880 going to be a good day to do it. So 0:14:22.960 --> 0:14:25.720 it really will be UM a signal to us and 0:14:25.880 --> 0:14:28.520 what we might expect going into the new year in 0:14:28.560 --> 0:14:31.120 the first few months of the new year. Hey, Karen, 0:14:31.160 --> 0:14:33.000 thanks so much for joining us. We really appreciate that. 0:14:33.080 --> 0:14:36.080 On the spot reporting from Hong Kong, Karen Lye, Bloomberg 0:14:36.120 --> 0:14:51.720 News Greater China Government Editor. Do you get a sense 0:14:51.720 --> 0:14:53.360 of kind of what we should be thinking about as 0:14:53.400 --> 0:14:56.640 we think about oil for Welcome Kevin book clear View 0:14:56.720 --> 0:14:59.000 Energy Partner's head of research. Kevin, thanks so much for 0:14:59.200 --> 0:15:01.920 joining us. So as we take a look at crude 0:15:01.960 --> 0:15:05.000 around the world. Is it fair to say this is 0:15:05.040 --> 0:15:08.000 just a clean proxy for what the market thinks is 0:15:08.000 --> 0:15:10.520 going to happen to global trade and trade tensions between 0:15:10.640 --> 0:15:14.000 US and China. Well, they're surely related. But we're also 0:15:14.080 --> 0:15:17.360 in a seasonal second half of the year demands peak, 0:15:17.600 --> 0:15:19.840 So when you think about what you're coming up to 0:15:20.040 --> 0:15:23.120 in the first quarter and the second quarter, you're gonna 0:15:23.120 --> 0:15:26.360 have the seasonal troughs. Uh So this is as strong 0:15:26.720 --> 0:15:30.040 really as things could look right now, given those underlying 0:15:30.320 --> 0:15:34.080 seasonal demand pulls on the trade side. You know, the 0:15:34.120 --> 0:15:36.600 trade war, such as it is with China is far 0:15:36.640 --> 0:15:40.280 from over. It's probably about over, and we don't know 0:15:40.320 --> 0:15:44.400 how long it's going to stay over. So there's still 0:15:44.480 --> 0:15:47.840 some looming uncertainty that could camp down industrial demand. That 0:15:47.960 --> 0:15:51.000 industrial demand is in the end crude demand. So we 0:15:51.080 --> 0:15:54.160 may not yet see a rebound into the into the 0:15:54.200 --> 0:15:56.360 first half of next year the same way we've seen 0:15:56.400 --> 0:15:59.640 it in markets in the equity market so far. Right 0:16:00.000 --> 0:16:03.200 out of our colleagues over at Markets Live believe that 0:16:03.240 --> 0:16:05.560 too much good news has already been priced into the 0:16:05.600 --> 0:16:09.400 oil markets and that that could lead to a significant correction. 0:16:09.720 --> 0:16:12.720 Is that what you believe. Well, yeah, we do see 0:16:13.000 --> 0:16:15.560 you know a Brent range in the five handles, probably 0:16:15.560 --> 0:16:20.000 the fifty five. They're about sixty range for next year, 0:16:20.560 --> 0:16:23.400 which is below where we are now, and it's based 0:16:24.000 --> 0:16:26.560 on a number of things, including significant supply coming on 0:16:26.680 --> 0:16:30.480 stream in the Permian has a very long skid mark. 0:16:30.640 --> 0:16:32.480 You know, when we talk over and over again about 0:16:32.480 --> 0:16:36.120 shale correcting, it is not synthetic spare capacity. It is 0:16:36.160 --> 0:16:38.000 not like OPEC where they can turn it on and 0:16:38.040 --> 0:16:41.160 turn it off inside of ninety days. We're talking about 0:16:41.240 --> 0:16:44.240 nine months before. Things usually respond to price, and the 0:16:44.240 --> 0:16:48.120 bullishness you're seen in price today is preserving production tomorrow. 0:16:48.440 --> 0:16:50.640 So that sets up some of the weakness we're talking 0:16:50.680 --> 0:16:55.320 about in tandem with the production outside of the US. So, Kevin, 0:16:55.400 --> 0:16:57.440 let's talk a little bit about OPEC or OPEC plus. 0:16:57.480 --> 0:16:59.040 Give us a sense of kind of how you think 0:16:59.640 --> 0:17:04.200 o Heck is behaving right now? Are are people cooperating? Um? 0:17:04.240 --> 0:17:06.320 I think about Russia there, So give us a sense 0:17:06.359 --> 0:17:08.639 of just on the supply side, how is OPEQ and 0:17:08.640 --> 0:17:12.080 and OPEC plus kind of performing right now? You know, 0:17:12.119 --> 0:17:14.280 I think the optics still stay ahead of actuals in 0:17:14.320 --> 0:17:16.359 a lot of ways, the idea that the group is 0:17:16.400 --> 0:17:19.280 still together may be more reassuring to the bulls and 0:17:19.320 --> 0:17:22.800 the markets than the reality of things playing out. In 0:17:23.000 --> 0:17:27.520 excluding Russian condensate from the volume constraints essentially freed up 0:17:27.520 --> 0:17:30.560 barrels that Russia can bring to market, and liquids are 0:17:30.560 --> 0:17:33.880 not perfectly interchangeable. But when we count barrels, we count 0:17:33.880 --> 0:17:37.960 all liquids, and so that doesn't necessarily read is bullish 0:17:38.359 --> 0:17:41.760 as the readout from the medium might have suggested. Going forward, 0:17:42.080 --> 0:17:44.879 the cohesion of the group really reflects the wiliness and 0:17:44.920 --> 0:17:47.800 ability of the Kingdom to keep doing the heavy lifting 0:17:47.840 --> 0:17:50.439 which they have been doing. But when we look at 0:17:50.440 --> 0:17:53.600 the neutral zone coming downstream, uh that's you know, somewhere 0:17:53.600 --> 0:17:56.440 between three hundred and five thousand barrels per day coming 0:17:56.520 --> 0:17:59.520 up in the next six to nine months probably, and 0:17:59.560 --> 0:18:01.919 we're going to be looking at that pressuring crew to 0:18:01.960 --> 0:18:05.120 the downside unless the Kingdom does more work. Uh So 0:18:05.400 --> 0:18:08.199 what do we expect, Well, Kingdom's got invested interest and 0:18:08.240 --> 0:18:10.679 they're in it to win it right now. But in 0:18:10.720 --> 0:18:12.360 the end, if if it looks like there's too much 0:18:12.359 --> 0:18:15.960 defection from other players, watch out below. The big oil 0:18:16.040 --> 0:18:20.880 story often was obviously a ROMCO right, and nobody would 0:18:20.920 --> 0:18:25.600 stop talking about it from everywhere, from everywhere in the world. Really, 0:18:25.720 --> 0:18:28.680 can you touch us a little bit about international demand 0:18:28.880 --> 0:18:31.520 for this i p O. Obviously it was a very 0:18:31.560 --> 0:18:35.320 weak moving forward, but can we expect a little bit 0:18:35.359 --> 0:18:40.280 more love from international investors? That's not really our area 0:18:40.280 --> 0:18:42.840 of expertise. What we can't say with some some comfort 0:18:42.920 --> 0:18:46.280 is that the you know, the circumscribing the the i 0:18:46.400 --> 0:18:49.600 p O to non US nexus markets had it a 0:18:49.600 --> 0:18:52.320 lot more to do not with trying to get a 0:18:52.440 --> 0:18:55.520 good financial result for the Kingdom or to meet Prince 0:18:55.560 --> 0:18:58.280 Mohammed ben Selmon's two trillion dollar target, had a lot 0:18:58.359 --> 0:19:01.240 to do with the risk of sanctions and pressure here 0:19:01.280 --> 0:19:04.719 in the US under the Justice Against Sponsors of Terrorism 0:19:04.760 --> 0:19:08.160 Act and potentially under a Note Peck bill which would 0:19:08.160 --> 0:19:12.800 allow the sanctions or trade UH sorry Sherman antitrust pressure 0:19:12.840 --> 0:19:17.280 against the producers group. So UH looking outside the US 0:19:17.320 --> 0:19:20.600 created a limited demand in its own way, looking outside 0:19:20.600 --> 0:19:23.639 Western markets for the same reason. Beyond that, you know, 0:19:23.760 --> 0:19:26.600 if they do a further offering, the secondary offering, UH, 0:19:26.680 --> 0:19:29.280 they might look broader, but not whilely overhang here in 0:19:29.280 --> 0:19:33.280 the US interdicts their easy access to markets like ours. 0:19:33.640 --> 0:19:36.040 So Kevin, taking a look at the shale patch in 0:19:36.080 --> 0:19:38.520 the US, we hear a lot about, really in the 0:19:38.600 --> 0:19:42.879 last year plus about kind of the financial precarious the 0:19:42.880 --> 0:19:46.240 precarious financial position a lot of the operators there are 0:19:46.240 --> 0:19:49.160 we going to see in maybe some of the bigger 0:19:49.280 --> 0:19:51.920 energy players go in there and try to consolidate something 0:19:51.960 --> 0:19:54.960 that we're seeing in the permian um or how do 0:19:55.000 --> 0:19:58.640 you see that playing out. Consolidation is happening, but it's 0:19:58.640 --> 0:20:02.040 not happening with the apidity. I think that might be expected. 0:20:02.400 --> 0:20:04.360 Some of this has to do with, again the lifeline 0:20:04.359 --> 0:20:06.199 that you get from a boost in prices here in 0:20:06.280 --> 0:20:08.560 four Q. Some of it also has to do with 0:20:08.600 --> 0:20:11.159 the questions about buyers and the assets. They may not 0:20:11.280 --> 0:20:13.679 want all the assets, and those sellers may not be 0:20:13.760 --> 0:20:16.000 willing to go to the rock bottom that clears the 0:20:16.000 --> 0:20:19.639 market just yet. The infusion of debt capital to to 0:20:19.800 --> 0:20:22.960 the players that needed the most being constrained is a 0:20:23.000 --> 0:20:26.960 catalyst for further sales, further consolidation, but at the right price. 0:20:27.600 --> 0:20:29.639 Part of the problem with the vacillation in the market 0:20:29.640 --> 0:20:32.320 that we're seeing up or down does a lot to 0:20:32.359 --> 0:20:34.480 create uncertainty about whether or not there's going to be 0:20:34.520 --> 0:20:37.560 some bottom feeding happening. Speaking of boom bottom feeding, that's 0:20:37.600 --> 0:20:39.560 what I was going to ask, who are the buyers 0:20:39.640 --> 0:20:42.120 for all of these assets? We had Sam's ll here 0:20:42.200 --> 0:20:43.879 just a couple of months ago saying that he was 0:20:43.920 --> 0:20:47.560 looking at assets himself as the prices start to drop. 0:20:48.280 --> 0:20:51.199 Are there are other Sam's L's in the world that 0:20:51.240 --> 0:20:56.200 are also looking You know, private equity has been pretty constrained. Yeah, 0:20:56.280 --> 0:20:58.240 so the class of buyer that I think you're going 0:20:58.280 --> 0:21:00.480