WEBVTT - Surveillance: Energy Crisis in Texas 0:00:04.840 --> 0:00:09.440 Welcome to the Bloomberg Surveillance Podcast with Tom Keene, Jonathan Barrow, 0:00:09.520 --> 0:00:13.080 and Lisa Ramowitz Dally. We bring you inside from the 0:00:13.119 --> 0:00:18.120 best and economics, finance, investment, and international relations. Find Bloomberg 0:00:18.200 --> 0:00:22.159 Surveillance on Apple, Podcast, SoundCloud, Bloomberg dot Com, and the 0:00:22.160 --> 0:00:26.080 Bloomberg Tournament. There is a crisis from call it Winnipeg 0:00:26.120 --> 0:00:29.480 in the normal winter of Canada. An I'm down through 0:00:29.560 --> 0:00:32.400 the Dakotas and to Texas. We've seen the snow at 0:00:32.440 --> 0:00:35.920 the Alamo. It is a freeze. It is in many 0:00:35.960 --> 0:00:39.400 cases of blizzard with massive hardship. We tried to go 0:00:39.440 --> 0:00:42.440 out and find the guy qualified, and yes, that would 0:00:42.440 --> 0:00:46.800 be the Railroad Commission of Texas Commissioner Jim Right. But 0:00:46.960 --> 0:00:49.880 not for the reasons that you think. Jim Right grew 0:00:49.960 --> 0:00:53.760 up west of Corpus Christie. He's a legitimate guy who 0:00:53.800 --> 0:00:57.800 knows about the animals of Texas, the rodeo bull riding 0:00:57.840 --> 0:01:00.680 at all. He has a visceral knowledge, Jim, what people 0:01:00.720 --> 0:01:02.840 are putting up with right now. Jim, we want to 0:01:02.880 --> 0:01:04.679 talk to you about the electric grid and the rest 0:01:04.680 --> 0:01:07.199 of it, the energy markets. But I've got to ask 0:01:07.280 --> 0:01:09.840 you this morning. You're living it tell us what the 0:01:09.959 --> 0:01:15.759 ranchers are doing across the southern Midwest. Well, I'll tell 0:01:15.760 --> 0:01:19.840 you from being a rancher myself. We've been out repairing pipes, 0:01:20.760 --> 0:01:22.880 so we make sure that we have water and energy 0:01:23.200 --> 0:01:27.199 uh uh to our livestock and water to our homes. 0:01:27.760 --> 0:01:30.360 Is there a risk here or with modern technology, is 0:01:30.360 --> 0:01:35.479 it going to be different than eight nine? I don't 0:01:35.520 --> 0:01:38.880 see it being much different right now from those times 0:01:39.000 --> 0:01:42.360 you know, pipes, pipes seem to break whenever it gets cold, 0:01:42.400 --> 0:01:45.600 and you still have to go out and fix those. Well, Jim, 0:01:45.680 --> 0:01:49.040 given the fact that extreme temperature may become something more 0:01:49.080 --> 0:01:53.400 normal or perhaps more regularly occurring, and going forward, what 0:01:53.480 --> 0:01:56.920 do you expect to be necessary to fortify the electricity 0:01:56.920 --> 0:02:01.160 grid as we know it? You know, I think that 0:02:02.240 --> 0:02:04.560 we're going to have to take a stronger look at 0:02:04.800 --> 0:02:08.120 uh who's allowed priority on our grid system. Right now, 0:02:08.200 --> 0:02:11.720 we're saying that the renewable energy has that priority, which 0:02:11.760 --> 0:02:17.440 is discouraging our are reliable energy source, which seems to 0:02:17.480 --> 0:02:22.360 be more natural gas fossil fuel related from coming in 0:02:22.520 --> 0:02:25.560 and building the plants needed to pick up this power 0:02:25.639 --> 0:02:28.920 demand in time times like these. Wait, but I just 0:02:28.960 --> 0:02:30.880 really want to clarify this ship. Are you saying that 0:02:30.960 --> 0:02:34.679 the problem here lies with the wind turbines, some of 0:02:34.720 --> 0:02:37.160 the renewable energies and not with some of the pipelines 0:02:37.480 --> 0:02:41.960 and freezing and other issues there is that what you're saying, Well, yeah, 0:02:42.080 --> 0:02:45.600 in a certain way, you know, I think that as 0:02:45.600 --> 0:02:48.959 we here in Texas has said that renewable energy has 0:02:49.040 --> 0:02:53.400 priority on our grid. We've discouraged the people coming in 0:02:53.520 --> 0:02:56.880 and building car plants that run off of natural gas, 0:02:56.919 --> 0:02:59.640 which is more of a reliable source than than has 0:02:59.680 --> 0:03:03.680 every and knows when and uh the sun is. So 0:03:04.000 --> 0:03:06.679 I think that what we're experiencing today is the fact 0:03:06.760 --> 0:03:09.200 that we just don't have enough plants to keep up 0:03:09.240 --> 0:03:12.200 with our demand during times like these. What does the 0:03:12.320 --> 0:03:16.840 Railroad Commission of Texas need to do to dovetail a 0:03:16.960 --> 0:03:21.760 boom economy and the capitalism of Texas with the constraints 0:03:21.919 --> 0:03:28.040 the limits that you face ecologically. Yeah, I think that, uh, 0:03:28.280 --> 0:03:30.680 one of those big things is more on along the 0:03:30.760 --> 0:03:34.440 lines of educating people on the benefits of fossil fuel 0:03:34.480 --> 0:03:37.200 and the benefits of our renewable energy. You know, both 0:03:37.200 --> 0:03:40.080 both have places here in Texas. I think that we 0:03:40.160 --> 0:03:42.240 need to make sure that we are smart enough to 0:03:42.280 --> 0:03:45.800 make those coexisting along alongside one another, but while still 0:03:45.880 --> 0:03:49.520 keeping a focus on improving our environment. You know, when 0:03:49.560 --> 0:03:51.320 I look at the environment, I look at that in 0:03:51.360 --> 0:03:54.200 two ways. It's not only what mankind's impact is our 0:03:54.240 --> 0:03:58.280 planet Earth, but it's also are the impact caused by 0:03:58.480 --> 0:04:03.720 the debt that we're accumulating trying to trying to continue 0:04:03.720 --> 0:04:08.400 to protect what mankind's uh impact we seem to think 0:04:08.440 --> 0:04:10.960 we have on on on Earth. You know, we we've 0:04:10.960 --> 0:04:13.480 had some large issues here in Texas with flaring and 0:04:13.760 --> 0:04:18.520 and I think it's important that we in Texas start 0:04:18.560 --> 0:04:21.520 developing more of a market for our natural gas so 0:04:21.560 --> 0:04:25.440 that that that continues to be a good, reliable source 0:04:26.040 --> 0:04:29.240 and did not create any type of impact on as 0:04:29.279 --> 0:04:31.880 far as the missions is concerned. Jim right, you've got 0:04:31.880 --> 0:04:35.080 a crisis right now in this weather. The crisis was 0:04:35.160 --> 0:04:39.680 your stunning victory a year ago within this important position 0:04:39.720 --> 0:04:43.360 for the state of Texas. How did you pull that off? 0:04:43.560 --> 0:04:47.680 How did a rancher from basically west of Corpus Christie 0:04:48.240 --> 0:04:51.159 pull off the victory you pulled off? And how can 0:04:51.200 --> 0:04:56.800 you provide that lesson is leadership to move Texas forward? Now? 0:04:56.839 --> 0:04:59.600 I think It shows that people in Texas are are 0:04:59.640 --> 0:05:03.320 looking at people that are putting in office today to 0:05:03.440 --> 0:05:06.640 be more of a leader with a business mind. You know, 0:05:06.640 --> 0:05:08.920 I've been in business pretty much all of my life 0:05:08.920 --> 0:05:12.280 with my own companies and work closely in the all 0:05:12.320 --> 0:05:16.000 and gas industry and all energy sectors. And the people 0:05:16.040 --> 0:05:18.280 that are out out in that sector and seemed to 0:05:18.360 --> 0:05:20.800 dominate what we have here in Texas, especially in the 0:05:20.880 --> 0:05:24.320 rural areas, and they know what that means to our economy. 0:05:24.960 --> 0:05:28.080 And I think that that is that's the key to success, 0:05:28.240 --> 0:05:31.280 is people that know boots on the ground and how 0:05:31.320 --> 0:05:34.520 to get issues resolved. Jim, it's fantastic to have you 0:05:34.560 --> 0:05:36.480 us on the program with us. Please come back soon, 0:05:36.560 --> 0:05:39.039 stay close, and we wish to stay well. Jim, right there, 0:05:39.200 --> 0:05:48.000 the Texas Railroad Commissioner. I look at the Swiss twenty 0:05:48.080 --> 0:05:50.960 year yield is sort of a keel of the boat 0:05:51.080 --> 0:05:54.200 of Europe. John, it's about ready to move to a 0:05:54.240 --> 0:05:57.400 positive statistic once more. It's been a negative twenty year 0:05:57.480 --> 0:06:00.599 yield in Switzerland and it's come up like a moon shot. 0:06:00.839 --> 0:06:02.760 I know Allen knows as well. I would go to 0:06:02.800 --> 0:06:05.360 bunds as well. Tom bundyil to moving with treasury old 0:06:05.400 --> 0:06:07.040 as well, let's bring it down and Rusky in Deutsche 0:06:07.040 --> 0:06:09.560 Bank chief International strategist, and and let's just start right 0:06:09.600 --> 0:06:11.880 there that line. The bottom line, the only reason to 0:06:11.880 --> 0:06:14.800 be barished is there is no reason to be barished. 0:06:14.800 --> 0:06:19.360 What's your takeaway, Alan Well, I think the main cautionary 0:06:19.400 --> 0:06:22.760 note to the bullish equity view is really that there's 0:06:22.800 --> 0:06:25.279 good reasons to be bearish in terms of bonds. I 0:06:25.320 --> 0:06:30.599 think the fixed income story revolves around the reflation that 0:06:30.600 --> 0:06:33.400 we're going on, but also the risks are very much 0:06:33.440 --> 0:06:37.279 tilted towards access reflation um And I'm not necessarily saying 0:06:37.720 --> 0:06:40.680 we're talking about inflation per se, because inflation is very 0:06:40.720 --> 0:06:43.800 much a lagging indicator, lags growth by about eighteen months. 0:06:44.240 --> 0:06:47.320 But in terms of growth and the potential for overheating 0:06:47.440 --> 0:06:50.719 from fiscal policy, which is flat on into if we 0:06:50.800 --> 0:06:53.920 get anything close to the one point nine trillion from 0:06:53.960 --> 0:06:58.760 Biden money supply growth which is the highest ever. Financial 0:06:58.800 --> 0:07:02.839 conditions is easy as we've ever had. There's something for everybody. 0:07:02.880 --> 0:07:06.400 I think in terms of inflation. You know, I look 0:07:06.440 --> 0:07:09.720 Ellen it this move that we've had in the idea 0:07:09.800 --> 0:07:12.960 that we've given up worried about inflation moving up. We 0:07:13.080 --> 0:07:15.800 have been wrong, wrong, wrong, wrong. I mean you've been 0:07:15.800 --> 0:07:18.760 doing this for four or five, six decades, Alan, I 0:07:18.760 --> 0:07:22.440 mean we have been wrong on inflation moving higher. Why 0:07:22.480 --> 0:07:26.280 won't we be wrong again? We might be wrong again, 0:07:26.560 --> 0:07:29.760 And you know, it's it's it's a it's a tough core. 0:07:29.800 --> 0:07:33.400 I think we know where all the risks currently lie. 0:07:33.640 --> 0:07:36.680 As I mentioned earlier, you know, the lags along, so 0:07:36.880 --> 0:07:38.680 we want to know whether we're right or wrong for 0:07:38.720 --> 0:07:41.720 a long period of time. But you know, when you're 0:07:41.720 --> 0:07:44.880 think in terms of the things that are disinflationary, part 0:07:44.880 --> 0:07:47.920 of it just relates to the calculation. The cyclical elements 0:07:47.960 --> 0:07:50.160 will be inflationary, but we have lots of things which 0:07:50.160 --> 0:07:53.800 are not cyclical, things like medical care, things like education. 0:07:53.960 --> 0:07:58.280 A lot of the services don't necessarily respond to higher growth, 0:07:58.440 --> 0:08:02.040 so we might not see it in the statistics, but 0:08:02.840 --> 0:08:05.760 the cyclic or elements will almost certainly show some uptick. 0:08:06.040 --> 0:08:10.360 Allen is the reflectionary trade dependent on central banks remaining 0:08:10.520 --> 0:08:14.920 this accommodative forever. I don't think so. Look, I think 0:08:14.960 --> 0:08:17.920 the you know, the FED clearly doesn't want to take 0:08:17.960 --> 0:08:20.440 away the punch bowl in terms of their flexible average 0:08:20.480 --> 0:08:23.680 inflation targeting regime. You know, if they true to that, 0:08:23.720 --> 0:08:26.200 they're not going to be hiking rates for this year. 0:08:26.240 --> 0:08:28.520 They're not gonna be hiking rates next year, probably only 0:08:28.600 --> 0:08:32.200 hike in three So you know, I think in that sense, 0:08:32.760 --> 0:08:35.840 they're not huge amount of risks. I think the bigger 0:08:35.880 --> 0:08:38.360 issues what the market does and what the bond market does. 0:08:38.440 --> 0:08:40.720 So the market is going to tighten for the FED 0:08:40.760 --> 0:08:43.520 to some extent, and I think that's going to constrain 0:08:44.040 --> 0:08:46.760 some of the boolliants that we're seeing in risky assets. Well, 0:08:46.760 --> 0:08:49.120 and let's talk about the energy story as well, because Crew, 0:08:49.120 --> 0:08:51.920 it's been absolutely flying even before this deepening energy crisis 0:08:51.960 --> 0:08:54.520 in the United States of America. I've had a lot 0:08:54.520 --> 0:08:56.240 of people in the last couple of months talking about 0:08:56.280 --> 0:08:59.599 at the start of another commodity supercycle. Alan, does that 0:08:59.640 --> 0:09:02.560 reson it with you? I don't know about a supercycle, 0:09:02.640 --> 0:09:06.240 but I like oil and our oil guys, you know, 0:09:06.880 --> 0:09:09.440 clearly behind that call in terms of you know, favorable 0:09:09.480 --> 0:09:13.080 oil trades. The good news there is that unlike a 0:09:13.120 --> 0:09:16.079 lot of other markets which are being preemptive of thinking forward, 0:09:16.320 --> 0:09:19.480 and it can price things forward aggressively at least the 0:09:19.520 --> 0:09:23.000 storage costs and oil tend to mean that you don't 0:09:23.080 --> 0:09:27.000 price quite far ahead, and I think that helps one 0:09:27.240 --> 0:09:29.320 in terms of thinking that oil can go higher in 0:09:29.320 --> 0:09:31.760 the future. And now that's what's interesting I think is 0:09:31.840 --> 0:09:34.680 if you look at the curve today, the backwardation we 0:09:34.760 --> 0:09:38.640 see in the forward's curve is quite extraordinary. So, you know, 0:09:38.720 --> 0:09:40.560 I think that also hints that you can sort of 0:09:40.559 --> 0:09:43.960 pick up I think deck W T I around fifty five. 0:09:44.120 --> 0:09:46.920 That still seems like a decent bed. Allen, you do 0:09:47.080 --> 0:09:50.960 such good work on the history at all times. What 0:09:51.200 --> 0:09:54.280 is this like? Is there a compare and contrast to 0:09:54.360 --> 0:10:00.640 a previous moment or time that you can grab on here? Honestly, uh, 0:10:00.800 --> 0:10:03.680 you mentioned four or five decades, not quite five or 0:10:03.720 --> 0:10:07.720 six decades, close to the four decades of work, And 0:10:07.800 --> 0:10:11.320 I've never seen anything like this at all in terms 0:10:11.640 --> 0:10:15.000 of um, you know, the the ease of policy I 0:10:15.040 --> 0:10:19.559 mentioned earlier, you know, the fiscal stimulus outside wartime, extraordinary 0:10:19.720 --> 0:10:23.679 money supply growth like we've never seen before. Every indicator 0:10:23.720 --> 0:10:28.600 with in financial conditions, equities, credit spreads, the exchange rate, 0:10:29.040 --> 0:10:33.040 all are extraordinarily easy. Now we have come often in 0:10:33.679 --> 0:10:36.960 a particular shock at one of the you know, really 0:10:37.000 --> 0:10:39.920 the sharpest shock I've ever seen in terms of the virus. 0:10:40.200 --> 0:10:42.760 But equally, when we get the vaccine, we should be 0:10:42.800 --> 0:10:46.600 rebounding in the other directions. So you've got policy compounding 0:10:46.679 --> 0:10:49.920 that rebound. So, um, you know, we really haven't seen 0:10:49.960 --> 0:10:52.839 anything like this before, and we probably are going to 0:10:52.920 --> 0:10:57.040 see GDP growth rates. Um. You know, our baseline without 0:10:57.720 --> 0:11:01.400 at the one point nine trillion Biden physical stimulus, just 0:11:01.600 --> 0:11:05.400 maybe something like a one trillion of physical package is 0:11:05.800 --> 0:11:09.360 six percent plus GDP growth. We're looking at a eight 0:11:09.400 --> 0:11:13.120 percent type number if we get the full physical package 0:11:13.120 --> 0:11:16.040 that Biden is promising. Alana. This is exactly why what 0:11:16.160 --> 0:11:18.560 you're talking about to tie this all together, this is 0:11:18.600 --> 0:11:21.480 exactly why people are saying that the old models of 0:11:21.559 --> 0:11:24.760 what a bubble is, of what overheated is don't count 0:11:25.120 --> 0:11:27.840 because this is a new era of central bank stimulus. 0:11:27.880 --> 0:11:30.400 It is a new era of reflation with respect to 0:11:30.440 --> 0:11:33.839 fiscal stimulus. Do you agree to the old models not 0:11:33.960 --> 0:11:36.559 work anymore and we can't count on them to ring 0:11:36.559 --> 0:11:39.080 the alarm bell saying there is too much froth from 0:11:39.120 --> 0:11:45.400 the system. I think we struggle to come up with 0:11:45.520 --> 0:11:51.240 accurate pricing and appropriate frameworks when interest rates is zero 0:11:51.720 --> 0:11:54.880 but as interest rates normalized, and if they normalize at 0:11:54.920 --> 0:11:57.000 the back end of the curve, and I think they'll 0:11:57.080 --> 0:12:00.599 start to reevaluate in terms of, you know, what appropriate 0:12:00.640 --> 0:12:03.640 p ratios are for a given bond healed, and I 0:12:03.679 --> 0:12:06.959 think that will lead to, you know, some rethinking in 0:12:07.080 --> 0:12:12.000 terms of fair valuations. But absolutely, if policy is this easy, 0:12:12.440 --> 0:12:16.920 we don't really know, you know, how to appropriately value things. 0:12:17.160 --> 0:12:21.760 And we're making a bet and making considerations that relates 0:12:21.880 --> 0:12:27.520 to whether we will see inflation eighteen months hence or not. Really, that's, 0:12:27.559 --> 0:12:30.760 to me is the macro question of the day. Alan, 0:12:30.880 --> 0:12:33.040 great to catch up, sir, and I'm Ruskin at Deutsche Bank. 0:12:33.120 --> 0:12:41.920 Thank you. Right now we're gonna switch back to what 0:12:42.080 --> 0:12:44.880 is a monthly visit and a required visit. Gideon Roses 0:12:44.920 --> 0:12:47.960 with the Council on Foreign her Relations are distinguished fellow 0:12:48.240 --> 0:12:51.560 and Guides of Foreign Affairs. Just a superb job of 0:12:51.640 --> 0:12:55.600 resurrecting the magazine into immediacy. And the immediacy is the 0:12:55.640 --> 0:12:59.000 decline and fall? Can America ever lead again? And you're 0:12:59.040 --> 0:13:03.040 now at Gideon, were a chapter of fragmented power? How 0:13:03.120 --> 0:13:08.520 fragmented are we? We are humpty dumpty, and we are 0:13:08.600 --> 0:13:12.840 just beginning to put this slightly back together with crazy 0:13:12.880 --> 0:13:17.559 glue and hoping that it doesn't fall down again before 0:13:17.600 --> 0:13:19.800 the glue sets getting and can give a sense of 0:13:19.840 --> 0:13:22.679 the import of having a global leader right now as 0:13:22.720 --> 0:13:25.520 we still have a pandemic very much in the forefront, 0:13:25.640 --> 0:13:28.320 with mutating strains and the idea that this is here 0:13:28.360 --> 0:13:35.640 to stay. Well. The pandemic emphasized that there was a 0:13:35.720 --> 0:13:40.880 real world out there that bites back, and that government 0:13:41.000 --> 0:13:44.240 is not just a game that Americans play with each other, 0:13:44.559 --> 0:13:48.320 and that politics isn't just a rhetorical blood sport. There 0:13:48.360 --> 0:13:51.920 are consequences, there are policies. Most people used to think 0:13:51.960 --> 0:13:54.080 the government is supposed to do something to protect the 0:13:54.120 --> 0:13:59.000 people from external dangers, internal dangers, and advance their interests. 0:13:59.040 --> 0:14:01.960 And when the government really didn't do anything about the pandemic, 0:14:02.000 --> 0:14:04.240 at least in the short term, uh, it seemed to 0:14:04.280 --> 0:14:08.439 fundamentally challenge that entire notion. And the world looked on 0:14:08.559 --> 0:14:10.040 and said, you guys aren't just supposed to be the 0:14:10.080 --> 0:14:11.880 government of the United States. You're supposed to be de 0:14:12.000 --> 0:14:15.199 facto running the world as well. And when the world 0:14:15.280 --> 0:14:18.920 just basically was left to go to its own devices 0:14:18.960 --> 0:14:22.280 like Lord of the flies under pressure, everybody went to 0:14:22.360 --> 0:14:27.520 their own national interests, and essentially the world started to fragment, 0:14:27.800 --> 0:14:30.520 and the order and the team that the United States 0:14:30.800 --> 0:14:33.840 had been leading for several decades ever since the end 0:14:33.840 --> 0:14:37.640 of World War two, fifth fully haltingly in different ways, 0:14:38.240 --> 0:14:43.240 started to break up or stagnate. And the question now is, Okay, 0:14:43.280 --> 0:14:46.240 there's a captain who's back in, you know, Dennis Robbins 0:14:46.320 --> 0:14:48.560 come back from Las Vegas and his partying, and now 0:14:48.560 --> 0:14:51.040 the bulls are ready to play, and something's actually gonna happen. 0:14:51.680 --> 0:14:54.520 What's gonna happen? The world is watching to see if 0:14:54.520 --> 0:14:58.600 the United States can regain its consciousness as a mature, 0:14:58.840 --> 0:15:05.040 responsible government, both domestically and internationally. And so far they 0:15:05.040 --> 0:15:07.440 don't necessarily like every single policy, and you're never gonna 0:15:07.440 --> 0:15:09.320 find every single policy because a lot of different players 0:15:09.320 --> 0:15:11.760 in the world. But so far, people are breathing a 0:15:11.800 --> 0:15:14.200 sigh of relief that some of the craziness seems to 0:15:14.240 --> 0:15:16.360 be over getting less phone in this fold in this 0:15:16.400 --> 0:15:19.160 conversation to the vaccine rollout, do you think the vaccine 0:15:19.240 --> 0:15:21.920 rollout of the last site three months or so is 0:15:21.920 --> 0:15:27.720 bringing countries further together or pushing them further apart. Uh. Well, 0:15:27.800 --> 0:15:30.520 I would say right now it's pushing them further apart, 0:15:30.720 --> 0:15:33.320 because everyone's sort of vying to get the vaccines, and 0:15:33.400 --> 0:15:35.920 it's a sort of crawling over each other to try 0:15:35.960 --> 0:15:37.840 and get the vaccine on the line. So it's a 0:15:37.840 --> 0:15:41.680 bigger type beg of the neighbor time situation. But over time, 0:15:41.920 --> 0:15:45.480 as the vaccines actually kick in, as we start getting 0:15:45.520 --> 0:15:49.480 something approaching her immunity down the road, as things as 0:15:49.480 --> 0:15:54.760 the cooperate, as the circumstances in which cooperation can take hold, 0:15:54.920 --> 0:15:58.600 after everybody is a little bit less scared, then you 0:15:58.680 --> 0:16:00.960 have a government in charge now in the United States 0:16:00.960 --> 0:16:04.080 that may be in a role to play the sort 0:16:04.080 --> 0:16:09.640 of calm uh team leader bringing people back together after 0:16:09.680 --> 0:16:12.360 the crisis. We're still in the depths of the crisis obviously, 0:16:12.400 --> 0:16:15.560 and everybody is still completely freaked, and everybody is still 0:16:15.640 --> 0:16:17.920 racing to try and get an immediate advantage. But as 0:16:18.440 --> 0:16:23.359 things get better over the course of one the opportunities 0:16:23.400 --> 0:16:25.920 to focus on the upside rather than just getting out 0:16:25.920 --> 0:16:28.000 of the media crisis and the down and and escaping 0:16:28.040 --> 0:16:30.880 the immediate downsides might become more apparent. And I think 0:16:30.920 --> 0:16:33.440 that and the payoffs and the Biden administration will start 0:16:33.480 --> 0:16:37.040 to come more apparent. Help me, here were the agenda 0:16:37.080 --> 0:16:38.840 of the president. The president is going to do a 0:16:38.920 --> 0:16:41.720 road trip I assumed to Europe to you know, regreet 0:16:41.760 --> 0:16:45.080 the allies, etcetera, meet the queen or whatever. And then 0:16:45.160 --> 0:16:49.000 there has to be some kind of Asia swing. Is 0:16:49.080 --> 0:16:54.479 Beijing on the itinerary? You know the details of that? Uh? 0:16:54.680 --> 0:16:59.280 Certainly the China relationship. The Biden administration understands it needs 0:16:59.320 --> 0:17:03.120 to rebuild its alliances first, because the United States does 0:17:03.160 --> 0:17:07.120 not play international politics as an individual. It plays as 0:17:07.160 --> 0:17:10.960 a team leader. The Bush administrator, the Trump administration failed 0:17:10.960 --> 0:17:13.520 to recognize that, and the rest of the team was going, 0:17:13.640 --> 0:17:16.840 what's going on? Since you have been the leader of 0:17:16.880 --> 0:17:20.159 a global alliance that has essentially run the entire world, 0:17:20.680 --> 0:17:23.720 what are you talking about this only America thing. The 0:17:23.760 --> 0:17:27.359 Biden administration, recognizing that it is team leader first and foremost, 0:17:27.720 --> 0:17:31.040 has made mending its relations with its core allies the 0:17:31.080 --> 0:17:35.440 first agenda item. But dealing with China and the U. S. 0:17:35.560 --> 0:17:40.080 China relationship will clearly be the single greatest challenge over 0:17:40.119 --> 0:17:43.959 the course not just of the Biden administration for American 0:17:44.000 --> 0:17:46.199 farm policy, but for at least the next decade and 0:17:46.240 --> 0:17:49.440 maybe the next generation or two of American farm policy. 0:17:49.480 --> 0:17:51.520 And so the question is can the United States and 0:17:51.640 --> 0:17:56.240 China manage their relationship which is clearly somewhat conflictual but 0:17:56.440 --> 0:17:59.000 does not need to go to war? Can they manage 0:17:59.000 --> 0:18:01.240 it that and keep it within tracks and on rails? 0:18:01.280 --> 0:18:03.240 Getting no, what's great to catch up. Appreciate your time 0:18:03.280 --> 0:18:05.960 this morning, sir. Thank you getting roads there of CFR. 0:18:11.800 --> 0:18:14.800 Mandy zero joining us now on this market from Credit Space, 0:18:14.960 --> 0:18:18.680 the chief equity derivative strategist. This market is grinding higher, 0:18:18.720 --> 0:18:20.920 up another twenty one on the SNP and we've got 0:18:20.920 --> 0:18:23.800 one on the US ten year Manny, just want me three. 0:18:23.800 --> 0:18:26.119 You're thinking right now that relationship between the direction of 0:18:26.119 --> 0:18:30.760 ten year yields and what happens with the broad directorting market. Yeah, hey, hey, 0:18:30.880 --> 0:18:32.800 John um So. I think we've gotten a lot of 0:18:32.920 --> 0:18:36.240 questions around inflation from investors in recent weeks, given the 0:18:36.320 --> 0:18:38.919 movements and break events, and the point that I make 0:18:39.000 --> 0:18:41.920 here that it's important differentiate like what we're talking about 0:18:41.920 --> 0:18:45.399 when it comes to INFLATIONIP, are we talking about a 0:18:45.480 --> 0:18:49.240 temporary overshoot of inflation this year due to reopening? Due 0:18:49.280 --> 0:18:51.760 to all this you know demand that everyone's talking about, 0:18:52.320 --> 0:18:57.000 or are we talking about a sustained increase sustained runaway inflationhip? Right? 0:18:57.240 --> 0:19:00.520 I think the FED really cares about ladder. I think 0:19:00.560 --> 0:19:03.080 it doesn't really care about the former, and I had 0:19:03.119 --> 0:19:06.439 not heard anyone makes a real credible case for the latter. 0:19:06.800 --> 0:19:09.440 And I think in this case, when it comes to inflation, 0:19:09.480 --> 0:19:13.240 it actually helps that Powell is not a trained economist 0:19:13.560 --> 0:19:17.840 or doesn't have a formal economics training like yelling or burnanky, 0:19:17.920 --> 0:19:21.240 because he's less weathered to economic theory that says, you know, 0:19:21.359 --> 0:19:25.040 as unemployment comes down, inflation must rise. Right. I think 0:19:25.040 --> 0:19:27.520 he's booking at the empirical data which shows him that 0:19:27.840 --> 0:19:30.359 inflation is nowhere to be found in the developed world 0:19:30.359 --> 0:19:32.800 of last twenty years. And as such, you know, the 0:19:32.840 --> 0:19:35.880 SEID can be much more focused on its unemployment mandate 0:19:36.160 --> 0:19:39.680 without lowering about inflation. So what does that mean for markets? 0:19:40.520 --> 0:19:42.720 I think it's going to be very very patient this year. 0:19:43.040 --> 0:19:45.040 I think, you know, even if we get a big 0:19:45.240 --> 0:19:49.040 core CPC overshoot at some point this year due to reopening, 0:19:49.320 --> 0:19:52.120 you know, sets able to stay very patient. And that's 0:19:52.200 --> 0:19:55.760 positive for equities and positives for a lot of rotation 0:19:55.800 --> 0:19:58.120 trades that we've already started to see that I think 0:19:58.119 --> 0:20:01.040 ex for the room to run man help merror mortals 0:20:01.040 --> 0:20:03.119 here on a Tuesday morning with the Greeks. You're the 0:20:03.160 --> 0:20:06.760 derivatives said your credit sueez and the idea that you're 0:20:06.760 --> 0:20:11.280 moving up. You're in play. But there are signposts where 0:20:11.480 --> 0:20:15.800 enough is enough. One of the signals where you say 0:20:15.840 --> 0:20:20.800 in the derivative market, enough is enough. Look, I think 0:20:20.920 --> 0:20:23.359 people are rightly worried about I guess you know, you know, 0:20:23.480 --> 0:20:26.720 the speed of the rally, how substainable it is, whether people, 0:20:26.960 --> 0:20:29.840 you know, investors are too completion. So what I can 0:20:29.840 --> 0:20:33.000 say is, at least on the derivatives market, positioning at 0:20:33.000 --> 0:20:36.679 the index level is still very cautious. And I say this, 0:20:36.760 --> 0:20:40.240 you know, with VIC still relatively elevated, even though markets 0:20:40.280 --> 0:20:43.199 making all time high. And I say particularly if you 0:20:43.280 --> 0:20:46.560 look at you know, the demand for protection as index level, 0:20:46.880 --> 0:20:50.600 that is still very very ROBUSTO measures, skew measures of 0:20:50.720 --> 0:20:54.879 tail risk in the SMP. You know, it's still near 0:20:55.040 --> 0:20:57.440 the highs that we've seen over the past year. So 0:20:57.880 --> 0:20:59.520 at least in the index market is slow as that 0:20:59.560 --> 0:21:02.160 we've seen, We're still seeing a lot of demands will protection. 0:21:02.200 --> 0:21:04.320 A lot of downtime had just been put on, So 0:21:04.880 --> 0:21:08.000 I don't see that kind of euphoria that um, you 0:21:08.000 --> 0:21:10.840 know in the index level that you know, I do 0:21:10.920 --> 0:21:13.479 a single stock level, which is a totally different story. 0:21:13.560 --> 0:21:15.720 But I would say at the index level, positioning is still, 0:21:15.960 --> 0:21:18.520 you know, fairly cautious. Mandy, let's talk single stock, let's 0:21:18.560 --> 0:21:20.719 talk game stop and those hearings that Congress is going 0:21:20.760 --> 0:21:23.840 to be having later this week. What's your sense in 0:21:23.960 --> 0:21:27.439 terms of whether there is something improper that occurred with 0:21:27.480 --> 0:21:30.080 the derivatives trading that you saw that you think they 0:21:30.080 --> 0:21:34.080 will hone in on and perhaps target. Look, I think 0:21:34.240 --> 0:21:36.960 takeaway here that this is much bigger than just one 0:21:37.040 --> 0:21:41.199 particular stock or you know, one particular segment. The bigger 0:21:41.320 --> 0:21:44.040 impact from you know, the retail trading that we've seen 0:21:44.160 --> 0:21:47.680 is that across broad swath of the market, we're seeing 0:21:47.720 --> 0:21:50.960 a complete repricing of upside risk. So you know, the 0:21:51.000 --> 0:21:52.880 game stop, the A m c s, you know, those 0:21:52.880 --> 0:21:56.159 are tiny, right, but within the SMP top one hundred 0:21:56.240 --> 0:22:00.480 large cap stock, thirty percent are now trading with inverted skew, 0:22:00.520 --> 0:22:03.760 which is just a technical term saying that the upside 0:22:03.760 --> 0:22:06.280 calls are now trading at a premium to be at 0:22:06.320 --> 0:22:09.000 the money calls. That is very, very unusual. To put 0:22:09.040 --> 0:22:13.280 that percentage in perspective, over the last ten years, that 0:22:13.359 --> 0:22:17.120 percentage historically has averages out six percent. Right, So now 0:22:17.119 --> 0:22:21.000 we're thirty percent of the names trade with inverted skew 0:22:21.280 --> 0:22:23.840 when traditionally has been up six percent. I think that's 0:22:23.880 --> 0:22:28.040 the legacy, that's the impact from the retail option trading. 0:22:28.040 --> 0:22:31.280 Where notice the retail consumer piece, it's typically buyers of 0:22:31.400 --> 0:22:34.399 upside call options. And that's how we're seeing It's upside 0:22:34.400 --> 0:22:38.600 call with the higher across you know, not just small caps, 0:22:38.680 --> 0:22:41.160 not just the highly you know, shorter names, but we're 0:22:41.160 --> 0:22:43.600 seeing it, you know, with the large cap tech names, 0:22:43.640 --> 0:22:49.160 with the financials, with the energy across broad industries and inspectors. So, Mandy, 0:22:49.200 --> 0:22:50.760 we got thirty seconds with you, so forgive me for 0:22:50.760 --> 0:22:52.719 pushing you on the time. You are much smarter than 0:22:53.000 --> 0:22:55.119 put this into very simple terms for our audience this 0:22:55.160 --> 0:22:58.080 morning that might not be familiar with these things. Yield up, 0:22:58.440 --> 0:23:00.840 the equity market is up, and the VIX is up 0:23:00.840 --> 0:23:03.920 this morning. Why just in very simple terms, why is 0:23:04.000 --> 0:23:08.280