1 00:00:05,080 --> 00:00:07,200 Speaker 1: This is the Bloomberg Surveillance Podcast. 2 00:00:07,680 --> 00:00:08,280 Speaker 2: I'm Lisa A. 3 00:00:08,320 --> 00:00:11,640 Speaker 1: Bromoids, along with Tom Keen and Jonathan Ferrell. Join us 4 00:00:11,680 --> 00:00:15,280 Speaker 1: each day for insight from the best in economics, geopolitics, 5 00:00:15,320 --> 00:00:19,480 Speaker 1: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 6 00:00:19,600 --> 00:00:22,840 Speaker 1: Spotify and anywhere you get your podcasts, and always on 7 00:00:22,880 --> 00:00:26,440 Speaker 1: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 8 00:00:26,680 --> 00:00:28,640 Speaker 3: Let's get to the conversation at started this morning with 9 00:00:28,680 --> 00:00:32,440 Speaker 3: Lori Cavasina had a US secrety strategy over RBC Capital Markets. Lori, 10 00:00:32,560 --> 00:00:35,880 Speaker 3: good morning to you. Let's start with that move in crude. 11 00:00:36,040 --> 00:00:39,280 Speaker 3: Is that a wrinkle in the soft landing dream crude 12 00:00:39,280 --> 00:00:40,520 Speaker 3: getting back in ninety again? 13 00:00:41,880 --> 00:00:42,800 Speaker 2: Well, thanks for having me. 14 00:00:42,840 --> 00:00:44,839 Speaker 4: As always, John, I think there are so many wrinkles 15 00:00:44,920 --> 00:00:47,440 Speaker 4: right now. I think you can add this to a 16 00:00:47,479 --> 00:00:49,280 Speaker 4: conflicting cross current list. 17 00:00:49,920 --> 00:00:51,040 Speaker 2: On the one hand, I. 18 00:00:50,960 --> 00:00:53,400 Speaker 4: Think the last thing consumers need at this point in time, 19 00:00:53,520 --> 00:00:55,960 Speaker 4: especially as we're heading into the student lending issue, which 20 00:00:56,000 --> 00:00:58,640 Speaker 4: is generating a lot of uncertainty on the street, is 21 00:00:58,640 --> 00:01:01,320 Speaker 4: a spike in oil prices and gas prices. On the 22 00:01:01,360 --> 00:01:03,920 Speaker 4: other hand, if we get the energy sector working, and 23 00:01:03,960 --> 00:01:07,160 Speaker 4: I think that happens as oil prices move up that 24 00:01:07,200 --> 00:01:10,039 Speaker 4: does potentially spark a shift out of growth and back 25 00:01:10,080 --> 00:01:12,920 Speaker 4: into value in more cyclical parts of the market. So 26 00:01:13,080 --> 00:01:15,920 Speaker 4: I think wrinkle is definitely a good way to describe it. 27 00:01:16,040 --> 00:01:18,559 Speaker 3: Well, United Airlines might have a problem. Look at these numbers. 28 00:01:18,640 --> 00:01:21,440 Speaker 3: Jet fuel price is climbing over twenty percent since the 29 00:01:21,480 --> 00:01:24,600 Speaker 3: middle of July, seeing third quarter aill in fuel price 30 00:01:25,040 --> 00:01:28,280 Speaker 3: from two ninety five to three dollars and five cents 31 00:01:28,280 --> 00:01:31,640 Speaker 3: again and Bramo, this is going to hurt individual companies, 32 00:01:31,680 --> 00:01:33,679 Speaker 3: particularly the airlines, and not. 33 00:01:33,800 --> 00:01:35,600 Speaker 1: Just hurt, but also there is a question of are 34 00:01:35,640 --> 00:01:37,720 Speaker 1: they going to try to pass it along to consumers? Right, 35 00:01:37,880 --> 00:01:40,240 Speaker 1: these are sort of the knock on effects of higher 36 00:01:40,280 --> 00:01:43,920 Speaker 1: oil prices that could percolate into inflation more than just 37 00:01:44,040 --> 00:01:47,520 Speaker 1: higher crude prices. Laurie, do you see any challenge to 38 00:01:47,560 --> 00:01:50,440 Speaker 1: the soft landing thesis and the price action, whether on 39 00:01:50,480 --> 00:01:52,639 Speaker 1: the heels of a higher crude prices or just because 40 00:01:52,640 --> 00:01:56,840 Speaker 1: there is such acceptance of this beautiful goldilock scenario. 41 00:01:58,160 --> 00:02:00,320 Speaker 4: Well, one of the things we've been talking to clients 42 00:02:00,360 --> 00:02:02,720 Speaker 4: about the last few weeks and got into a deep 43 00:02:02,720 --> 00:02:06,000 Speaker 4: discussion about this with someone yesterday is the buffers for 44 00:02:06,200 --> 00:02:09,480 Speaker 4: consumers I think are far greater than people have anticipated. 45 00:02:09,560 --> 00:02:11,959 Speaker 4: So I'm still in the soft landing kind. 46 00:02:11,800 --> 00:02:12,840 Speaker 2: Of goldilocks camp. 47 00:02:13,080 --> 00:02:14,640 Speaker 4: One of the things we've talked about a lot with 48 00:02:14,680 --> 00:02:16,640 Speaker 4: people is if you look at the effective rate on 49 00:02:16,680 --> 00:02:19,240 Speaker 4: mortgage jet outstanding at the end of the second quarter, 50 00:02:19,240 --> 00:02:22,239 Speaker 4: it was still about three point six percent. So everyone 51 00:02:22,280 --> 00:02:24,839 Speaker 4: talks about the savings rate, right, which got pulled down. 52 00:02:24,840 --> 00:02:26,800 Speaker 4: Now it's actually creeping back up again. But I've been 53 00:02:26,800 --> 00:02:29,359 Speaker 4: telling people that's not the only buffer out there, and 54 00:02:29,480 --> 00:02:32,680 Speaker 4: we're still really benefiting as consumers from this era of 55 00:02:32,680 --> 00:02:34,840 Speaker 4: low interest rates. And yes, things are starting to shift 56 00:02:34,840 --> 00:02:37,359 Speaker 4: in a different direction, but I think that buffer has 57 00:02:37,440 --> 00:02:39,720 Speaker 4: been underappreciated, to be honest. 58 00:02:39,760 --> 00:02:42,240 Speaker 3: An update from Alaska rare as well, Laurie. Not just 59 00:02:42,320 --> 00:02:45,000 Speaker 3: United Airlines this headline crossing in the last minute or so. 60 00:02:45,320 --> 00:02:48,640 Speaker 3: Fuel prices have increased considerably in the past few weeks. 61 00:02:48,639 --> 00:02:51,320 Speaker 3: They now see third quarter fuel costs the gallon of 62 00:02:51,360 --> 00:02:54,880 Speaker 3: about three dollars fifteen to three twenty five. So clearly 63 00:02:54,960 --> 00:02:57,760 Speaker 3: a problem for the airlines, Laurie, but maybe in your mind, 64 00:02:57,800 --> 00:02:59,919 Speaker 3: not a problem for the consumer. Now some people point 65 00:03:00,320 --> 00:03:03,160 Speaker 3: to that positive real weight growth. We might start to 66 00:03:03,200 --> 00:03:05,600 Speaker 3: get gone into year end and perhaps into twenty twenty 67 00:03:05,600 --> 00:03:08,280 Speaker 3: four as well. Consumer discretion has been a big thing 68 00:03:08,320 --> 00:03:10,160 Speaker 3: for a lot of people LORI in certain parts of 69 00:03:10,240 --> 00:03:12,679 Speaker 3: that sector. I'm thinking of the airlines. I'm thinking of 70 00:03:12,680 --> 00:03:15,040 Speaker 3: the cruise lines as well. It's that kind of spending 71 00:03:15,080 --> 00:03:17,880 Speaker 3: lorry in your mind set to last into year end. 72 00:03:19,680 --> 00:03:22,480 Speaker 4: So I would say let's separate the airlines somewhat from 73 00:03:22,480 --> 00:03:26,160 Speaker 4: the consumers. Generally, if you look at airline earnings revision trends, 74 00:03:26,200 --> 00:03:30,079 Speaker 4: they've actually been pretty peaky, suggesting that maybe sentiment from 75 00:03:30,080 --> 00:03:32,240 Speaker 4: an earnings perspective had gotten a little bit stretched on 76 00:03:32,280 --> 00:03:34,000 Speaker 4: that side. So I would maybe put those into a 77 00:03:34,000 --> 00:03:34,920 Speaker 4: separate category. 78 00:03:35,560 --> 00:03:36,840 Speaker 2: I did not this in our weekly. 79 00:03:36,880 --> 00:03:39,040 Speaker 4: We are still tracking the TSA data a couple of 80 00:03:39,040 --> 00:03:42,400 Speaker 4: COVID high frequency indicator holdovers, and we've started to see 81 00:03:42,400 --> 00:03:44,800 Speaker 4: some weakness on that, so I think that is something 82 00:03:44,840 --> 00:03:46,520 Speaker 4: to keep an eye on here. But I do think 83 00:03:46,600 --> 00:03:49,840 Speaker 4: generally this idea that consumers are tired of all these goods, 84 00:03:49,880 --> 00:03:51,960 Speaker 4: They have too much stuff in their houses and basements, 85 00:03:52,160 --> 00:03:54,080 Speaker 4: and they want to get out and live their lives again. 86 00:03:54,600 --> 00:03:56,960 Speaker 4: I do think that there are still some tailwinds there now, 87 00:03:57,080 --> 00:03:59,720 Speaker 4: is that going to slow down? We are definitely seen 88 00:04:00,120 --> 00:04:03,600 Speaker 4: look through a variety of earnings calls companies saying consumers 89 00:04:03,640 --> 00:04:07,200 Speaker 4: are becoming more cost conscious, they are pushing back, they 90 00:04:07,240 --> 00:04:10,400 Speaker 4: are adapting to this intensive price environment around them. So 91 00:04:10,840 --> 00:04:13,600 Speaker 4: I would say expects some moderation. You know, from my seat, 92 00:04:13,760 --> 00:04:15,920 Speaker 4: I wouldn't see that as reason to panic though, I'd 93 00:04:15,920 --> 00:04:18,479 Speaker 4: see that as evidence of rationality, to be honest. 94 00:04:18,560 --> 00:04:20,919 Speaker 1: So Lorie, just to build on that, there is a question, 95 00:04:21,040 --> 00:04:23,280 Speaker 1: especially as we see Alaska Air and as we see 96 00:04:23,360 --> 00:04:26,560 Speaker 1: United Air talk about higher fuel prices, how much they 97 00:04:26,600 --> 00:04:28,839 Speaker 1: can pass that along to the consumer. You're saying there 98 00:04:28,920 --> 00:04:32,919 Speaker 1: is price sensitivity increasingly showing itself. Is this just going 99 00:04:33,000 --> 00:04:35,120 Speaker 1: to end up showing itself in the margin compression. 100 00:04:36,440 --> 00:04:37,440 Speaker 2: I think that's a great. 101 00:04:37,240 --> 00:04:37,640 Speaker 5: Point, Lee. 102 00:04:37,680 --> 00:04:40,320 Speaker 4: So that's another hot topic we've been having with clients 103 00:04:40,320 --> 00:04:42,320 Speaker 4: in our conversations lately, is what's going to happen to 104 00:04:42,360 --> 00:04:43,240 Speaker 4: margins next year. 105 00:04:43,440 --> 00:04:44,720 Speaker 2: I've got a tiny. 106 00:04:44,360 --> 00:04:47,279 Speaker 4: Bit of margin contraction making my earnings forecast, and that 107 00:04:47,400 --> 00:04:50,960 Speaker 4: stands in contrast to the street numbers, which are anticipating 108 00:04:50,960 --> 00:04:53,480 Speaker 4: a bit of expansion. One of the things we've told 109 00:04:53,520 --> 00:04:56,800 Speaker 4: people is that as inflation comes down, companies are going 110 00:04:56,839 --> 00:05:00,080 Speaker 4: to lose the sort of justification for passing through the 111 00:05:00,080 --> 00:05:03,320 Speaker 4: these price increases, and that ends up impacting revenues. The 112 00:05:03,360 --> 00:05:05,679 Speaker 4: flow through to margins, and my back testing at least 113 00:05:05,720 --> 00:05:09,760 Speaker 4: is not completely clear. I think there are soft offsets 114 00:05:09,800 --> 00:05:12,400 Speaker 4: like management ability to kind of manage through cut costs 115 00:05:12,440 --> 00:05:13,360 Speaker 4: in various places. 116 00:05:13,600 --> 00:05:15,880 Speaker 2: The margin data is very, very much to the forecast. 117 00:05:15,880 --> 00:05:17,720 Speaker 4: But I will tell you that I really see in 118 00:05:17,720 --> 00:05:21,920 Speaker 4: my model evidence that as pricing comes down, as inflation 119 00:05:22,040 --> 00:05:24,720 Speaker 4: comes down, it is a bigger hit to revenue growth 120 00:05:24,720 --> 00:05:26,600 Speaker 4: than most people understand. And I think that's one of 121 00:05:26,640 --> 00:05:28,240 Speaker 4: the new narratives we are going to have to be 122 00:05:28,279 --> 00:05:31,239 Speaker 4: discussing as we start to formulate twenty twenty four outlooks. 123 00:05:31,360 --> 00:05:33,080 Speaker 3: Laurie, I've got to squeeze this in the headline. If 124 00:05:33,080 --> 00:05:36,080 Speaker 3: you piece overnight there are tactical problems with the growth trade, 125 00:05:36,360 --> 00:05:37,800 Speaker 3: what are those technical problems? 126 00:05:39,200 --> 00:05:42,720 Speaker 4: Crowding, overvaluation, earnings dominance is eroding. 127 00:05:42,760 --> 00:05:43,560 Speaker 2: It's that simple. 128 00:05:43,640 --> 00:05:47,080 Speaker 4: It has been outperforming for very good reasons. We're staring 129 00:05:47,120 --> 00:05:49,280 Speaker 4: down the barrel of what's probably a sluggish economy for 130 00:05:49,360 --> 00:05:51,600 Speaker 4: quite some time, but that is priced in. It's just 131 00:05:51,640 --> 00:05:54,600 Speaker 4: a plain old fashioned, overvalued, crowded trade right now. 132 00:05:54,800 --> 00:05:57,680 Speaker 3: Lauri Campasena of MBC Capital Market's Lurie, thanks for the 133 00:05:57,720 --> 00:05:59,320 Speaker 3: update from the NBC desk. 134 00:06:03,680 --> 00:06:06,760 Speaker 1: Joining us now is someone who always has incredible insights. 135 00:06:06,960 --> 00:06:09,520 Speaker 1: We love catching up with her over it in Jackson Hole, 136 00:06:09,760 --> 00:06:12,880 Speaker 1: Neila Richardson, chief economist at ADP, with a real insight 137 00:06:13,080 --> 00:06:16,320 Speaker 1: into just how much ammunition firepower a lot of the 138 00:06:16,360 --> 00:06:19,159 Speaker 1: consumers have. And Neila, throughout the morning, John and I 139 00:06:19,200 --> 00:06:22,680 Speaker 1: were talking about this real income increase that we're seeing 140 00:06:22,720 --> 00:06:26,400 Speaker 1: across the board, and I'm wondering, from your perspective, how 141 00:06:26,480 --> 00:06:28,919 Speaker 1: much is that going to fuel the next wave of 142 00:06:28,960 --> 00:06:32,760 Speaker 1: consumer spending in a way that maybe isn't being fully appreciated. 143 00:06:34,040 --> 00:06:36,680 Speaker 6: Hey, Lisa, good morning, Good to see you. Yeah, real 144 00:06:36,720 --> 00:06:39,520 Speaker 6: wages going up is a great thing. It's a great 145 00:06:39,560 --> 00:06:43,279 Speaker 6: thing for workers. But I think it's very important to 146 00:06:43,400 --> 00:06:47,560 Speaker 6: provide context to that number because the thing about inflation, 147 00:06:47,720 --> 00:06:50,560 Speaker 6: and I know this sounds very obvious, is that prices 148 00:06:50,720 --> 00:06:53,400 Speaker 6: generally go up, but when it comes to core inflation, 149 00:06:53,520 --> 00:06:56,760 Speaker 6: they don't come back down, and so we're still looking 150 00:06:56,800 --> 00:06:57,760 Speaker 6: at higher prices. 151 00:06:57,760 --> 00:06:59,400 Speaker 2: From the consumer perspective. 152 00:07:00,240 --> 00:07:04,360 Speaker 6: You've seen the wage growth is for predominantly low pageops, 153 00:07:05,279 --> 00:07:06,640 Speaker 6: and so that by our. 154 00:07:06,720 --> 00:07:09,080 Speaker 2: Estimate is about five thousand. 155 00:07:08,720 --> 00:07:11,200 Speaker 6: Dollars over the course of a year and a half 156 00:07:11,240 --> 00:07:15,040 Speaker 6: of double digit wage growth for this particular sector. 157 00:07:15,400 --> 00:07:17,680 Speaker 2: Five thousand dollars after tax. 158 00:07:18,040 --> 00:07:22,960 Speaker 6: Doesn't buy a lot of eggs, oil, higher rent prices, 159 00:07:23,000 --> 00:07:25,360 Speaker 6: and medical care. So you have to put this in 160 00:07:25,400 --> 00:07:27,880 Speaker 6: the context of the consumer household budget as well. 161 00:07:27,960 --> 00:07:29,880 Speaker 1: It's really important to look at it that way, especially 162 00:07:29,920 --> 00:07:31,880 Speaker 1: in light of what we've been talking about also this morning. 163 00:07:31,880 --> 00:07:34,840 Speaker 1: A lot which is oil prices and gasoline prices, diesel, 164 00:07:34,960 --> 00:07:38,000 Speaker 1: all of it heading higher and significantly, So how much 165 00:07:38,080 --> 00:07:40,480 Speaker 1: is that going to crimp budgets in a more material 166 00:07:40,520 --> 00:07:43,680 Speaker 1: way at a time where there already is heightened awareness 167 00:07:43,760 --> 00:07:46,440 Speaker 1: of price sensitivity simply because of what we've seen in 168 00:07:46,520 --> 00:07:47,640 Speaker 1: the levels that we've gotten to. 169 00:07:49,160 --> 00:07:51,800 Speaker 6: Oil price is going up even for a short time, 170 00:07:51,960 --> 00:07:55,160 Speaker 6: just complicates this narrative for the FED. Right, It's the 171 00:07:55,200 --> 00:07:58,720 Speaker 6: one part of the economy we thought we've had under 172 00:07:58,720 --> 00:08:02,520 Speaker 6: control that high oil prices wasn't going to spill over 173 00:08:02,560 --> 00:08:05,160 Speaker 6: into transportation costs or goods production. 174 00:08:05,560 --> 00:08:06,920 Speaker 2: But yeah, the specter. 175 00:08:06,640 --> 00:08:09,520 Speaker 6: Has risen again, and so now we know even if 176 00:08:09,520 --> 00:08:12,320 Speaker 6: the oil prices go down in the short term, they're 177 00:08:12,360 --> 00:08:16,040 Speaker 6: always there, not quite asleep, and they could peek up. 178 00:08:16,080 --> 00:08:17,960 Speaker 2: In terms of the consumer budget. 179 00:08:17,760 --> 00:08:20,320 Speaker 6: We're back to school, we're back to work, we're back 180 00:08:20,360 --> 00:08:24,080 Speaker 6: to commuting, and so those oil prices are not going 181 00:08:24,120 --> 00:08:27,320 Speaker 6: to be something that consumers can skirt around, even if 182 00:08:27,360 --> 00:08:29,120 Speaker 6: there's more remote work. 183 00:08:28,960 --> 00:08:29,680 Speaker 2: Than there used to be. 184 00:08:29,800 --> 00:08:31,400 Speaker 1: And we were talking about this in light of some 185 00:08:31,440 --> 00:08:33,840 Speaker 1: of the warnings from the likes of United Airlines and 186 00:08:33,880 --> 00:08:37,440 Speaker 1: Alaska Airlines in Southwest saying that their energy prices have 187 00:08:37,480 --> 00:08:41,119 Speaker 1: increased dramatically, which is not shocking considering what Diesel has done. 188 00:08:41,440 --> 00:08:43,680 Speaker 1: How much can they pass this along to consumers that 189 00:08:43,720 --> 00:08:45,080 Speaker 1: already are starting to push back. 190 00:08:46,920 --> 00:08:48,120 Speaker 2: Yeah, that's tricky. 191 00:08:48,840 --> 00:08:53,400 Speaker 6: Air flights have gone up, consumers may have overdrawn their 192 00:08:53,600 --> 00:08:57,200 Speaker 6: burst of revenge travel, and especially going into the fall, 193 00:08:57,240 --> 00:09:00,800 Speaker 6: there's less of a holiday travel season, and so that's 194 00:09:00,920 --> 00:09:02,200 Speaker 6: also a particular concern. 195 00:09:02,240 --> 00:09:04,439 Speaker 2: Also, it's very hot. I don't know if you noticed that. 196 00:09:04,520 --> 00:09:08,000 Speaker 6: I did notice that in terms of energy costs, even 197 00:09:08,080 --> 00:09:11,240 Speaker 6: late into September and much of the country, air conditioning 198 00:09:11,520 --> 00:09:14,440 Speaker 6: is really driving up energy costs separate from the airlines, 199 00:09:14,480 --> 00:09:18,720 Speaker 6: but part of the overall consumer budget picture that allows 200 00:09:18,720 --> 00:09:21,440 Speaker 6: for that wiggle room for travel. You're paying higher energy 201 00:09:21,480 --> 00:09:24,960 Speaker 6: costs at home harder to make room for that last 202 00:09:25,040 --> 00:09:26,320 Speaker 6: minute fall season. 203 00:09:26,000 --> 00:09:26,839 Speaker 2: Travel as well. 204 00:09:27,080 --> 00:09:30,040 Speaker 1: Although I will say that recently, just anecdotally talking about 205 00:09:30,040 --> 00:09:32,319 Speaker 1: the page book and anecdotes, I will say that going 206 00:09:32,360 --> 00:09:35,520 Speaker 1: into stores, I've noticed that people are actually air conditioning less, 207 00:09:35,520 --> 00:09:37,800 Speaker 1: and I wonder how much it's to save costs, because 208 00:09:37,800 --> 00:09:39,760 Speaker 1: sometimes you go in and it's still really hot. Anyway, 209 00:09:39,800 --> 00:09:43,080 Speaker 1: I digress. I'm wondering from your vantage point going forward. 210 00:09:43,320 --> 00:09:45,840 Speaker 1: A lot of people are looking at Friday's jobs report 211 00:09:45,840 --> 00:09:48,400 Speaker 1: and saying it was goldilocks. It basically gave the Fed 212 00:09:48,440 --> 00:09:52,040 Speaker 1: a free pass to remain on hold, and then bond 213 00:09:52,120 --> 00:09:54,840 Speaker 1: yields rose. They rose on Friday, and they rose again yesterday. 214 00:09:54,840 --> 00:09:57,560 Speaker 1: People saying it was technical, people saying it's because maybe 215 00:09:57,600 --> 00:09:59,720 Speaker 1: the Fed would pause and then there'd be a reacceleration 216 00:09:59,760 --> 00:10:03,160 Speaker 1: of an inflation. How would you describe the labor data 217 00:10:03,160 --> 00:10:05,720 Speaker 1: that we've been getting, both from ADP as well as 218 00:10:05,920 --> 00:10:09,480 Speaker 1: from the government, in terms of is it really goldilocks? 219 00:10:11,480 --> 00:10:13,880 Speaker 6: You know, we're in a labor market that is in 220 00:10:13,920 --> 00:10:17,720 Speaker 6: some sense goldilocks. We're seeing wage pressures start to decline. 221 00:10:17,760 --> 00:10:18,440 Speaker 2: And moderate. 222 00:10:18,760 --> 00:10:22,320 Speaker 6: We're still seeing solid job gains, but within that overall 223 00:10:22,360 --> 00:10:26,320 Speaker 6: macro picture, it's a highly fragmented market. It's a market 224 00:10:26,360 --> 00:10:29,600 Speaker 6: that has seen a lot of churn and continues to 225 00:10:29,640 --> 00:10:33,040 Speaker 6: see elevated churn. And within all that, there's a lot 226 00:10:33,080 --> 00:10:36,720 Speaker 6: of inefficiencies. And so really I think that the Fed's 227 00:10:36,920 --> 00:10:41,480 Speaker 6: job now is much more complicated. When inflation was super high, 228 00:10:41,800 --> 00:10:44,880 Speaker 6: it was easy to know what monetary policy was supposed 229 00:10:44,920 --> 00:10:48,560 Speaker 6: to do. Now they're entering this period of fine tuning, right, 230 00:10:48,559 --> 00:10:51,640 Speaker 6: they're tweaking what the terminal rate should be. Maybe it's 231 00:10:51,679 --> 00:10:54,160 Speaker 6: twenty five more basis points, maybe it's fifty, Maybe it's 232 00:10:54,200 --> 00:10:57,440 Speaker 6: a pause in September. There's all the spectrum of choice 233 00:10:57,520 --> 00:10:59,920 Speaker 6: depending on what data you're looking at. If you look 234 00:11:00,040 --> 00:11:02,200 Speaker 6: at the labor market, there is an argument to go 235 00:11:02,320 --> 00:11:05,880 Speaker 6: stronger and there is an argument to pause. And it's 236 00:11:06,000 --> 00:11:08,959 Speaker 6: just a matter of where you're putting the weight. Are 237 00:11:09,000 --> 00:11:11,319 Speaker 6: you putting it on the unemployment rate? Are you putting 238 00:11:11,360 --> 00:11:13,760 Speaker 6: it on wage growth? And that is going to be 239 00:11:13,800 --> 00:11:16,319 Speaker 6: something that the FED is going to have to feel. 240 00:11:16,080 --> 00:11:17,440 Speaker 2: Out in all of this data. 241 00:11:17,520 --> 00:11:19,680 Speaker 1: What happened to all the layoffs, the white color layoffs, 242 00:11:19,720 --> 00:11:23,760 Speaker 1: The people were talking about a year ago, they never happened. 243 00:11:24,440 --> 00:11:27,920 Speaker 6: Should we see initial jobless claims are still quite low, 244 00:11:28,800 --> 00:11:31,920 Speaker 6: and this is still a very solid labor market. Even 245 00:11:32,000 --> 00:11:35,000 Speaker 6: though the unemployment rate went up to three point eight 246 00:11:35,000 --> 00:11:37,960 Speaker 6: percent in this last report, it was because more people 247 00:11:38,000 --> 00:11:41,640 Speaker 6: came into the labor market, not necessarily because companies. 248 00:11:41,240 --> 00:11:41,960 Speaker 2: Were laying off. 249 00:11:42,320 --> 00:11:44,640 Speaker 6: And when we look at our data, we see still 250 00:11:44,679 --> 00:11:48,360 Speaker 6: solid growth across sectors. Even sectors that have struggled this year, 251 00:11:48,679 --> 00:11:52,680 Speaker 6: like manufacturing, for sure, services are still seeing strength. And 252 00:11:52,760 --> 00:11:55,760 Speaker 6: so yeah, if you're looking for bad news on the economy, 253 00:11:56,080 --> 00:11:58,840 Speaker 6: I encourage you to look elsewhere because the labor market 254 00:11:58,920 --> 00:12:00,520 Speaker 6: is not the source of it. 255 00:12:00,440 --> 00:12:02,200 Speaker 1: Which a lot of people are saying is the reason 256 00:12:02,200 --> 00:12:04,800 Speaker 1: why there is going to be ongoing strength. Neila Richardson, 257 00:12:04,920 --> 00:12:06,160 Speaker 1: chief economist at ADP. 258 00:12:16,559 --> 00:12:19,400 Speaker 3: Kevin book joined just now managing director of Research at 259 00:12:19,400 --> 00:12:22,120 Speaker 3: cliffew Energy Partners. Kevin, what is crew doing in the 260 00:12:22,120 --> 00:12:25,160 Speaker 3: eighties with all production in America at twelve point eight 261 00:12:25,240 --> 00:12:26,840 Speaker 3: million barrows a day. 262 00:12:26,920 --> 00:12:30,280 Speaker 7: Well, it's prospering, it's going ahead and reaching for the 263 00:12:30,280 --> 00:12:33,040 Speaker 7: skies because some of the biggest producers in the world 264 00:12:33,160 --> 00:12:35,360 Speaker 7: other than the US are cutting supplies to the world 265 00:12:35,840 --> 00:12:38,440 Speaker 7: and when you look at the Saudi Arabian and Russian 266 00:12:38,480 --> 00:12:41,800 Speaker 7: decisions in recent days, I think traders are starting to 267 00:12:41,800 --> 00:12:45,679 Speaker 7: finally take them seriously. You know, Prince Abdulaziz, the Energy 268 00:12:45,679 --> 00:12:48,959 Speaker 7: minister of Saudi Arabia, referred to the million barrel of 269 00:12:49,000 --> 00:12:50,479 Speaker 7: voluntary cut as a lollipop. 270 00:12:51,000 --> 00:12:52,080 Speaker 5: It's starting to seem. 271 00:12:51,840 --> 00:12:54,559 Speaker 7: Like an all day sucker, a really long lasting effect, 272 00:12:54,840 --> 00:12:56,680 Speaker 7: and that's getting priced in now as well. 273 00:12:56,960 --> 00:12:59,600 Speaker 3: Kevin, that's hooking up monthly reviews. Are you saying in 274 00:12:59,600 --> 00:13:02,120 Speaker 3: that monthly review nothing's going to change. 275 00:13:01,800 --> 00:13:04,800 Speaker 7: Well, nothing has changed so far. That is a caveat 276 00:13:04,840 --> 00:13:08,040 Speaker 7: that leaves room for opportunity. I think the Kingdom in 277 00:13:08,080 --> 00:13:11,760 Speaker 7: particular is wary of crushing economic recovery wherever it might 278 00:13:11,760 --> 00:13:16,120 Speaker 7: occur and stalling the economy generally globally. But right now 279 00:13:16,160 --> 00:13:18,319 Speaker 7: it looks like there's still room to run. So no, 280 00:13:18,360 --> 00:13:21,080 Speaker 7: we're we from the very start. If you looked at it, 281 00:13:21,120 --> 00:13:24,800 Speaker 7: the seventy five dollars barrel worked backwards from an elasticity effect, 282 00:13:25,000 --> 00:13:26,400 Speaker 7: it looked like it should have been about a nine 283 00:13:26,480 --> 00:13:29,120 Speaker 7: dollars nine and a half dollars per barrel impact from 284 00:13:29,160 --> 00:13:31,720 Speaker 7: the million dollar cutback. The market didn't price it in 285 00:13:31,800 --> 00:13:34,040 Speaker 7: right away, probably because it thought it was evanescent, but 286 00:13:34,080 --> 00:13:36,520 Speaker 7: now that it looks during Yeah, sure, we're looking at 287 00:13:36,559 --> 00:13:37,960 Speaker 7: a real premium. 288 00:13:37,559 --> 00:13:39,720 Speaker 1: At this point. Though how much is this also driven 289 00:13:39,720 --> 00:13:42,240 Speaker 1: by the fact that growth isn't as bad as people 290 00:13:42,280 --> 00:13:45,200 Speaker 1: previously expected in places like China and even Europe. 291 00:13:45,600 --> 00:13:47,440 Speaker 7: Second half of the year is always a bigger demand 292 00:13:47,520 --> 00:13:50,080 Speaker 7: part of the year than the first half. My colleague 293 00:13:50,240 --> 00:13:52,120 Speaker 7: jacqu Rousseau, who you have on from time to time 294 00:13:52,160 --> 00:13:54,840 Speaker 7: as well, he points out that we're looking at about 295 00:13:54,840 --> 00:13:57,880 Speaker 7: a four q two point one million barrel demand ahead 296 00:13:57,880 --> 00:13:58,320 Speaker 7: of supply. 297 00:13:59,559 --> 00:14:01,560 Speaker 5: That deficit is going to be pretty enduring. 298 00:14:01,760 --> 00:14:04,160 Speaker 7: There's a lot of that demand concentrated, yes, in China, 299 00:14:04,240 --> 00:14:06,599 Speaker 7: a lot of it in jet fuel. That increases the 300 00:14:06,679 --> 00:14:08,920 Speaker 7: risks if there's a if there's some sort of hiccup 301 00:14:08,920 --> 00:14:11,959 Speaker 7: over there, but it doesn't change the overall dynamic when 302 00:14:11,960 --> 00:14:14,439 Speaker 7: we're looking at sort of a seasonal effect. 303 00:14:14,880 --> 00:14:17,640 Speaker 1: There's also a question around what the bogie is for 304 00:14:17,679 --> 00:14:20,560 Speaker 1: Saudi Arabia and maybe even for Russia. Is there a 305 00:14:20,600 --> 00:14:22,960 Speaker 1: sense that they're trying to get oil prices to a 306 00:14:23,000 --> 00:14:27,240 Speaker 1: certain specific level before they'll start to try to balance 307 00:14:27,360 --> 00:14:29,560 Speaker 1: out some of their supply versus the demand. 308 00:14:29,840 --> 00:14:31,680 Speaker 7: Well, I think that there are two separate things that 309 00:14:31,680 --> 00:14:35,080 Speaker 7: have to be taken separately. The Kingdom is aligned with 310 00:14:35,120 --> 00:14:39,160 Speaker 7: the Kremlin very explicitly as a matter of business, not politics. 311 00:14:39,760 --> 00:14:40,720 Speaker 5: And if you. 312 00:14:40,680 --> 00:14:43,720 Speaker 7: Look at the Kremlin, they've figured out that revenue is 313 00:14:43,760 --> 00:14:46,560 Speaker 7: equal to price times volume, and if they're going to 314 00:14:46,560 --> 00:14:50,880 Speaker 7: cut volume, a higher price works for them. The differences, though, 315 00:14:50,920 --> 00:14:55,040 Speaker 7: are one country funding or and another engaged in a 316 00:14:55,160 --> 00:15:00,800 Speaker 7: very sophisticated and elaborate negotiation towards it expanding the Abraham Accords. 317 00:15:01,200 --> 00:15:04,400 Speaker 7: I don't think that the Kingdom is looking to blow 318 00:15:04,480 --> 00:15:07,120 Speaker 7: up that opportunity, difficult though it may be, and with 319 00:15:07,160 --> 00:15:08,440 Speaker 7: many steps yet to come. 320 00:15:08,640 --> 00:15:12,240 Speaker 3: How important Kevin is it to refill the SPR and 321 00:15:12,280 --> 00:15:14,760 Speaker 3: how likely is it we're going to do that anytime soon? 322 00:15:15,040 --> 00:15:17,040 Speaker 7: Well, the Energy Department made it pretty clear John that 323 00:15:17,080 --> 00:15:19,920 Speaker 7: there's not much interest in doing it at this price level. 324 00:15:20,320 --> 00:15:23,280 Speaker 7: They pulled back from their requisition for six million barrels 325 00:15:23,400 --> 00:15:26,800 Speaker 7: of additional volume. But how important is it? Look, that's 326 00:15:26,840 --> 00:15:29,480 Speaker 7: a matter of opinion and perception. There are some who 327 00:15:29,520 --> 00:15:32,240 Speaker 7: would say that the SPR was never needed, and especially 328 00:15:32,240 --> 00:15:32,760 Speaker 7: not now in. 329 00:15:32,720 --> 00:15:33,640 Speaker 5: A world of shale. 330 00:15:33,760 --> 00:15:35,880 Speaker 7: I've testified at least six times on the hill that 331 00:15:36,320 --> 00:15:38,880 Speaker 7: it's an insurance policy, and the insurance is cheap when 332 00:15:38,920 --> 00:15:40,800 Speaker 7: you look at what it can do to prices to 333 00:15:40,880 --> 00:15:42,720 Speaker 7: draw it when you need it. So I would be 334 00:15:42,720 --> 00:15:44,640 Speaker 7: in the camp that it is worth refilling and should 335 00:15:44,640 --> 00:15:47,160 Speaker 7: be done as soon as it can be affordably done 336 00:15:47,280 --> 00:15:47,880 Speaker 7: so effectively. 337 00:15:47,880 --> 00:15:50,080 Speaker 3: To build on what you've testified, we don't have that 338 00:15:50,120 --> 00:15:53,760 Speaker 3: insurance policy right now, Kevin. So how vulnerable are we. 339 00:15:53,320 --> 00:15:55,400 Speaker 7: Well, we have three hundred and fifty million barrels of 340 00:15:55,440 --> 00:15:58,320 Speaker 7: oil in the spr still, which is not trivial. On 341 00:15:58,360 --> 00:15:59,840 Speaker 7: the other hand, what we don't have is the full 342 00:15:59,840 --> 00:16:02,440 Speaker 7: case ring capacity of the reserve, and we don't have 343 00:16:02,480 --> 00:16:05,960 Speaker 7: the clarity that that conveyed when it was bigger. I 344 00:16:05,960 --> 00:16:07,840 Speaker 7: think that was not only a message to the world 345 00:16:07,880 --> 00:16:10,880 Speaker 7: about insurance against economic risk, but also a message to 346 00:16:10,960 --> 00:16:13,600 Speaker 7: producers that if they didn't take up the slack and 347 00:16:13,640 --> 00:16:16,760 Speaker 7: bring the market back into alignment, the US would undercut 348 00:16:16,800 --> 00:16:18,560 Speaker 7: them and take away their premium. 349 00:16:18,600 --> 00:16:21,240 Speaker 1: How awkward does this make? The meeting between President Biden 350 00:16:21,280 --> 00:16:24,800 Speaker 1: and Muhammad Binsman of Saudi Arabia expected in the next 351 00:16:25,040 --> 00:16:27,440 Speaker 1: few days or so at the G twenty meetings, and. 352 00:16:27,400 --> 00:16:28,640 Speaker 7: I don't think it's going to get in the way 353 00:16:28,640 --> 00:16:32,840 Speaker 7: of a fist bump. Look, they economic currency of oil 354 00:16:32,880 --> 00:16:35,640 Speaker 7: trade remains the dollar, much to the chagrin of some 355 00:16:35,640 --> 00:16:38,960 Speaker 7: who would think otherwise. The political currency of oil prices 356 00:16:39,000 --> 00:16:42,160 Speaker 7: remains blame. The challenge for the White House is not 357 00:16:42,200 --> 00:16:44,400 Speaker 7: just geopolitical, but also domestically political. 358 00:16:44,680 --> 00:16:46,320 Speaker 5: The usual steps. 359 00:16:46,200 --> 00:16:48,520 Speaker 7: In the process of prices rising is for a White 360 00:16:48,520 --> 00:16:52,360 Speaker 7: House to blame overseas producers domestic producers. In this particular case, 361 00:16:52,400 --> 00:16:56,240 Speaker 7: blame the overseas producers very much complicates the negotiation. And 362 00:16:56,280 --> 00:17:00,200 Speaker 7: you saw Jake Sullivan yesterday very specifically avoid i mean 363 00:17:00,440 --> 00:17:04,879 Speaker 7: the Kingdom, as he and former National Economic Council Director 364 00:17:04,920 --> 00:17:06,520 Speaker 7: Brian Diese did in October. 365 00:17:07,000 --> 00:17:08,040 Speaker 5: And now at home. 366 00:17:07,880 --> 00:17:11,160 Speaker 7: You also have producers, some of them aligned at least 367 00:17:11,480 --> 00:17:14,440 Speaker 7: notionally with the White House climate agenda, probably not going 368 00:17:14,440 --> 00:17:16,359 Speaker 7: to want to blame them, at least ahead of the 369 00:17:16,359 --> 00:17:17,760 Speaker 7: Conference of Parties in Dubai. 370 00:17:18,280 --> 00:17:22,040 Speaker 5: So maybe a little lighter on the blame and more. 371 00:17:22,000 --> 00:17:24,840 Speaker 1: Room to talk given that there isn't going to necessarily 372 00:17:24,840 --> 00:17:27,800 Speaker 1: be a lot of action that necessarily comes from these 373 00:17:27,840 --> 00:17:31,959 Speaker 1: discussions based on the unwillingness to really place blame. What 374 00:17:32,080 --> 00:17:34,600 Speaker 1: is the offset. What is the off ramp for oil 375 00:17:34,640 --> 00:17:37,040 Speaker 1: prices going even higher? Why aren't we going to stay 376 00:17:37,040 --> 00:17:38,960 Speaker 1: at these levels and go even higher from here for 377 00:17:39,000 --> 00:17:39,720 Speaker 1: the near future. 378 00:17:39,920 --> 00:17:42,320 Speaker 7: I'm not sure you would want to bet against going higher, 379 00:17:42,359 --> 00:17:46,359 Speaker 7: but they're obviously the economic fundamentals decay when prices rise. 380 00:17:46,680 --> 00:17:49,399 Speaker 5: American drivers are pretty resilient. We can see that right now. 381 00:17:49,560 --> 00:17:51,760 Speaker 7: On a trailing twelve month basis through July, though, we 382 00:17:51,880 --> 00:17:55,680 Speaker 7: estimate that you're talking about some six hundred plus gallons 383 00:17:56,240 --> 00:17:59,320 Speaker 7: bought over the year through July by the average driver, 384 00:17:59,400 --> 00:18:01,359 Speaker 7: more by the way red states than in blue states. 385 00:18:01,520 --> 00:18:04,000 Speaker 7: So there's economics and politics to that. The other side 386 00:18:04,000 --> 00:18:05,800 Speaker 7: of it, though, is where you get more supply. Look, 387 00:18:05,880 --> 00:18:08,360 Speaker 7: it would be difficult to say this, I think from 388 00:18:08,560 --> 00:18:11,480 Speaker 7: the White House perspective, but a certain amount of rail 389 00:18:11,520 --> 00:18:15,000 Speaker 7: polytique is already at work on sanctions. The unspoken mini 390 00:18:15,040 --> 00:18:18,800 Speaker 7: deal with Iran brings sour barrels to market. Sanctions leniency 391 00:18:18,800 --> 00:18:21,920 Speaker 7: with Venezuela that could be crafted ahead of the election 392 00:18:22,000 --> 00:18:25,480 Speaker 7: next year to induce democratic reforms, that too, looks like 393 00:18:25,520 --> 00:18:27,760 Speaker 7: another source of barrels, and maybe a certain amount of 394 00:18:27,760 --> 00:18:30,480 Speaker 7: pragmatism in enforcing the price cap on Russian barrels to 395 00:18:30,600 --> 00:18:34,480 Speaker 7: third countries. So there are heavily sanctioned countries where the 396 00:18:34,520 --> 00:18:36,760 Speaker 7: White House can take a light touch. It looks like 397 00:18:36,800 --> 00:18:38,760 Speaker 7: they may already be doing so, or poised to do so. 398 00:18:38,880 --> 00:18:41,119 Speaker 3: Kevin, do you like cruises? That's all we want to know. 399 00:18:42,440 --> 00:18:45,800 Speaker 7: I like cruising in a car slowly down the street 400 00:18:45,880 --> 00:18:47,960 Speaker 7: on a hot summer day, dropped on a boat. 401 00:18:48,359 --> 00:18:49,960 Speaker 5: But food and booze not so much. 402 00:18:49,840 --> 00:18:52,440 Speaker 3: That we got on the same pite, Kevin, Thank you, Kevin, 403 00:18:52,480 --> 00:18:59,560 Speaker 3: both play with you at chip Annam Ruskin joins us 404 00:18:59,560 --> 00:19:02,840 Speaker 3: now chief International strategist over at Deutsche Bank. And talk 405 00:19:02,960 --> 00:19:06,439 Speaker 3: is cheap. Japan is talking a lot. Will verbal intervention work. 406 00:19:07,320 --> 00:19:08,880 Speaker 5: I think you hit the nail on the head. Talk 407 00:19:09,040 --> 00:19:09,480 Speaker 5: is cheap. 408 00:19:10,040 --> 00:19:13,960 Speaker 8: They're really fighting a strong dollar above all else, so 409 00:19:14,320 --> 00:19:17,640 Speaker 8: they don't really have control over the big dollar story. 410 00:19:18,200 --> 00:19:21,480 Speaker 8: They do have some control over the en If they 411 00:19:21,560 --> 00:19:24,560 Speaker 8: really want to strengthen the end, then they do have 412 00:19:24,640 --> 00:19:25,160 Speaker 8: the tools. 413 00:19:25,200 --> 00:19:27,440 Speaker 5: Now they've effectively. 414 00:19:26,840 --> 00:19:30,560 Speaker 8: Freed up the tenure heel to move above what is 415 00:19:30,600 --> 00:19:33,399 Speaker 8: now their latest cap at sixty five basis points, so 416 00:19:33,760 --> 00:19:37,439 Speaker 8: they can let the tenure heel drift up. The equilibrium 417 00:19:37,520 --> 00:19:40,119 Speaker 8: rates probably somewhere between one percent and one and a 418 00:19:40,200 --> 00:19:43,639 Speaker 8: quarter percent. If we did see a fifty basis point 419 00:19:43,760 --> 00:19:46,080 Speaker 8: increase in the tenure HEELD, that would do it. I 420 00:19:46,119 --> 00:19:50,560 Speaker 8: think that would do a lot more than intervention is 421 00:19:50,600 --> 00:19:52,640 Speaker 8: going to do as far as capping dollar yen. 422 00:19:53,040 --> 00:19:56,080 Speaker 1: Right now, we are seeing that ten year treasure at 423 00:19:56,119 --> 00:19:59,640 Speaker 1: the tenure Japanese bond at sixty five basis points, which 424 00:19:59,640 --> 00:20:01,879 Speaker 1: is sort of sharking. Give it where it's coming from, 425 00:20:02,240 --> 00:20:04,080 Speaker 1: just in terms of how much it's crept up alan. 426 00:20:04,240 --> 00:20:06,080 Speaker 1: What is the line in the sand for the Bank 427 00:20:06,119 --> 00:20:08,199 Speaker 1: of Japan. It seems to be moving in terms of 428 00:20:08,200 --> 00:20:09,920 Speaker 1: the yen, and at what point it is two weak? 429 00:20:10,480 --> 00:20:12,920 Speaker 8: Yeah, I think it's fortunate that it's moving because lines 430 00:20:12,960 --> 00:20:17,480 Speaker 8: in the sand are open to market attack. We've consistently 431 00:20:17,520 --> 00:20:21,000 Speaker 8: seen verbal intervention in this sort of one forty five 432 00:20:21,080 --> 00:20:25,000 Speaker 8: to one fifty range. You would think that if the 433 00:20:25,119 --> 00:20:28,120 Speaker 8: yen is being singled out for weakness and we move 434 00:20:28,200 --> 00:20:33,080 Speaker 8: above one fifty, then on those two conditions, really some 435 00:20:33,240 --> 00:20:36,320 Speaker 8: intervention could well be seen. But I think it's going 436 00:20:36,359 --> 00:20:39,439 Speaker 8: to need to see something a little bit different from 437 00:20:39,480 --> 00:20:42,160 Speaker 8: what we're seeing right now, which is the yen being 438 00:20:42,200 --> 00:20:46,159 Speaker 8: singled out for weakness in general. You know, we're seeing 439 00:20:46,240 --> 00:20:49,560 Speaker 8: a lot of other currencies under the kosh you know, China, 440 00:20:49,720 --> 00:20:53,480 Speaker 8: same sort of story in some sense. So you know, 441 00:20:53,480 --> 00:20:56,080 Speaker 8: I don't think the Japanese can say there's japan story 442 00:20:56,080 --> 00:20:56,760 Speaker 8: in particular. 443 00:20:56,920 --> 00:21:00,000 Speaker 1: Although in Japan it's not a positive thing. They don't 444 00:21:00,080 --> 00:21:02,840 Speaker 1: want to see a currency that's this week over in China, 445 00:21:02,880 --> 00:21:05,520 Speaker 1: there's a question of maybe they want a weaker currency, 446 00:21:05,560 --> 00:21:10,080 Speaker 1: maybe they'll actually help juice growth by increasing exports. At 447 00:21:10,119 --> 00:21:14,040 Speaker 1: what point is a weaker when a positive for China 448 00:21:14,280 --> 00:21:16,000 Speaker 1: versus something they want to intervene with. 449 00:21:16,400 --> 00:21:19,480 Speaker 8: Well, I think it is a positive. The authorities might 450 00:21:19,760 --> 00:21:21,760 Speaker 8: look at it somewhat differently. You know, there are all 451 00:21:21,840 --> 00:21:24,359 Speaker 8: sorts of things like national pride that get ropes into 452 00:21:24,760 --> 00:21:27,119 Speaker 8: views on the exchange rate. But I think if you 453 00:21:27,160 --> 00:21:31,680 Speaker 8: looked at the pure economics, you'd say, look, China's facing 454 00:21:31,840 --> 00:21:35,840 Speaker 8: deflation in its asset markets, It's facing disinflation in its 455 00:21:35,880 --> 00:21:39,440 Speaker 8: goods market. The exchange rate is a very natural safety 456 00:21:39,520 --> 00:21:43,879 Speaker 8: valve to allow for policy easing that you can't and 457 00:21:44,119 --> 00:21:48,480 Speaker 8: enact anywhere else. You've got interest rates extremely low at 458 00:21:48,520 --> 00:21:52,000 Speaker 8: the moment, You've got liquidity on the soft side, so 459 00:21:52,080 --> 00:21:55,520 Speaker 8: the exchange rates in natural vehicle, I think to actually 460 00:21:55,520 --> 00:21:56,159 Speaker 8: ease up. 461 00:21:56,320 --> 00:21:58,199 Speaker 3: Alan, if there are benefits from that, Why are they 462 00:21:58,240 --> 00:22:00,440 Speaker 3: setting such an aggressive reference rate? What do you think 463 00:22:00,440 --> 00:22:02,200 Speaker 3: that's about? Concerns about the pace. 464 00:22:01,960 --> 00:22:04,840 Speaker 8: Of the move Yeah, I think at the moment it 465 00:22:04,880 --> 00:22:07,639 Speaker 8: does seem like the authorities care an awful lot about 466 00:22:08,000 --> 00:22:11,000 Speaker 8: the levels, and you know, the level of visa via 467 00:22:11,080 --> 00:22:17,520 Speaker 8: dollar in particular. You know, I think there are elements there, 468 00:22:17,560 --> 00:22:21,479 Speaker 8: as I said, where you know the weakness that you're seeing. 469 00:22:22,240 --> 00:22:24,600 Speaker 8: I think they don't really want the exchange rate to 470 00:22:24,640 --> 00:22:29,080 Speaker 8: be another source of instability, and it is obviously something 471 00:22:29,080 --> 00:22:32,960 Speaker 8: which the markets can really latch onto. It's very visible 472 00:22:32,960 --> 00:22:35,159 Speaker 8: in a way in which the properly sector problems are 473 00:22:35,200 --> 00:22:37,800 Speaker 8: much less visible. So I think they in some ways 474 00:22:37,840 --> 00:22:40,000 Speaker 8: trying to control the things that they think they can 475 00:22:40,119 --> 00:22:43,239 Speaker 8: control for the time being, probably paying for time to 476 00:22:43,280 --> 00:22:46,320 Speaker 8: some extent, because you know, if the FEDS does eventually 477 00:22:46,359 --> 00:22:49,520 Speaker 8: cut rates in twenty twenty four, you do have the 478 00:22:49,560 --> 00:22:52,760 Speaker 8: basis then for a somewhat weaker dollar and it takes 479 00:22:52,760 --> 00:22:54,840 Speaker 8: some of the pressure of the Chinese authorities. 480 00:22:55,119 --> 00:22:57,200 Speaker 1: Do you think that the dollar has appreciated so much 481 00:22:57,240 --> 00:23:01,120 Speaker 1: so Alan, that it is presenting some sort of stability risk. 482 00:23:01,680 --> 00:23:04,040 Speaker 1: More generally, at what point how much further does it 483 00:23:04,080 --> 00:23:07,160 Speaker 1: have to go to actually shake things up just because 484 00:23:07,200 --> 00:23:09,360 Speaker 1: of some of these pressures over in Asia in particular. 485 00:23:09,760 --> 00:23:13,080 Speaker 8: No, I don't think it's a stability risk, honestly. I 486 00:23:13,080 --> 00:23:17,399 Speaker 8: think disinflation and deflation or the stability risk. I think 487 00:23:18,080 --> 00:23:22,520 Speaker 8: the Chinese authorities have the capacity to manage some weakness 488 00:23:22,760 --> 00:23:25,479 Speaker 8: to the extent that the external accounts are still pretty strong. 489 00:23:25,840 --> 00:23:29,119 Speaker 8: Experts are pretty much doing what the rest of Asia 490 00:23:29,200 --> 00:23:31,640 Speaker 8: is doing. But they could be stronger. But the current 491 00:23:31,680 --> 00:23:35,359 Speaker 8: account is in solid surplus, and I think that's going 492 00:23:35,400 --> 00:23:38,080 Speaker 8: to cushion any particular weakness. I don't think they need 493 00:23:38,119 --> 00:23:40,280 Speaker 8: to be too afraid that all of a sudden the 494 00:23:40,400 --> 00:23:43,080 Speaker 8: UN is going to drop a bit precipitously. 495 00:23:43,560 --> 00:23:46,560 Speaker 3: Alan, Thank you sir, I'm Foreign Exchange and I'm Ruskin 496 00:23:46,720 --> 00:24:00,119 Speaker 3: a Deutsche Bank. David Ligwitz is going to rescue you well. 497 00:24:00,200 --> 00:24:02,360 Speaker 3: Mark is trying to just the JP Mark and asset management. 498 00:24:02,480 --> 00:24:04,200 Speaker 3: David is going to see to see Thanks for bam. 499 00:24:04,400 --> 00:24:06,800 Speaker 3: Let's talk about that wrinkle in the soft landing dream 500 00:24:06,880 --> 00:24:09,880 Speaker 3: is crude back towards ninety dollars just south of that now, 501 00:24:09,960 --> 00:24:12,240 Speaker 3: through that level yesterday. How much of a problem might 502 00:24:12,240 --> 00:24:14,640 Speaker 3: that be for this rally that's really stilled out recently. 503 00:24:15,040 --> 00:24:17,199 Speaker 9: So I think that the problem it presents is that 504 00:24:17,240 --> 00:24:19,840 Speaker 9: it creates a tension between the growth story and the 505 00:24:19,880 --> 00:24:23,000 Speaker 9: inflation story. That creates this tension for the Federal Reserve. 506 00:24:23,040 --> 00:24:24,960 Speaker 9: And so on the one hand, we're going to see 507 00:24:25,000 --> 00:24:28,280 Speaker 9: headline inflation, which is what central banks obviously target, despite 508 00:24:28,359 --> 00:24:31,000 Speaker 9: focusing quite a bit on core, You're going to see 509 00:24:31,000 --> 00:24:33,679 Speaker 9: the headline inflation number begin to move higher. At the 510 00:24:33,680 --> 00:24:36,080 Speaker 9: same time, you have these higher energy prices, you have 511 00:24:36,119 --> 00:24:38,600 Speaker 9: the resumption of student loan payments, you have a savings 512 00:24:38,680 --> 00:24:42,439 Speaker 9: rate that has dropped relatively precipitously, and we wonder if 513 00:24:42,480 --> 00:24:45,600 Speaker 9: the consumer is beginning to bend, not necessarily break, but 514 00:24:45,760 --> 00:24:48,159 Speaker 9: show some signs of weakness. And this again creates attention 515 00:24:48,320 --> 00:24:49,919 Speaker 9: for the Fed. They want to make sure that they 516 00:24:49,960 --> 00:24:52,720 Speaker 9: get rid of the inflation that's been generated over the 517 00:24:52,720 --> 00:24:55,119 Speaker 9: past couple of years, but they're trying to do so 518 00:24:55,160 --> 00:24:57,120 Speaker 9: without causing it a recession. So their job has become 519 00:24:57,160 --> 00:24:59,040 Speaker 9: infinitely more difficult given this move. 520 00:24:59,320 --> 00:25:01,720 Speaker 1: Bear with me here for a second. How important is 521 00:25:01,760 --> 00:25:05,240 Speaker 1: it what happens with those extra oil costs for the 522 00:25:05,280 --> 00:25:08,120 Speaker 1: airline industries. In other words, if you start to see 523 00:25:08,119 --> 00:25:10,720 Speaker 1: them pass it along to consumers, does that shift the 524 00:25:10,760 --> 00:25:13,200 Speaker 1: conversation at the Federal Reserve in a way that it 525 00:25:13,200 --> 00:25:15,040 Speaker 1: wouldn't if it started to eat into margins. 526 00:25:15,520 --> 00:25:19,160 Speaker 9: So I think the airlines are an interesting story because 527 00:25:19,160 --> 00:25:21,639 Speaker 9: they've had pricing power all along. Right, as people have 528 00:25:21,720 --> 00:25:24,280 Speaker 9: begun to re engage with services and kind of put 529 00:25:24,320 --> 00:25:26,400 Speaker 9: goods off to the sides, the airlines have said, we've 530 00:25:26,400 --> 00:25:28,720 Speaker 9: been able to raise prices and people are willing to pay. 531 00:25:29,240 --> 00:25:30,760 Speaker 9: I don't know why you would change that in this 532 00:25:30,840 --> 00:25:32,520 Speaker 9: type of environment. So I think that they're going to 533 00:25:32,520 --> 00:25:35,040 Speaker 9: continue to raise prices in an effort to defend their margins. 534 00:25:35,160 --> 00:25:37,280 Speaker 9: But that's going to create an inflation problem. And again, 535 00:25:37,480 --> 00:25:39,439 Speaker 9: at some point here, the consumer is going to need 536 00:25:39,480 --> 00:25:41,520 Speaker 9: to make that decision. Do they go on the extra 537 00:25:41,560 --> 00:25:43,439 Speaker 9: trip or do they hunker down and begin to prepare 538 00:25:43,560 --> 00:25:45,080 Speaker 9: for a more challenging growth environment. 539 00:25:45,160 --> 00:25:47,040 Speaker 1: Do you sense of shift, And we've been talking about 540 00:25:47,040 --> 00:25:50,359 Speaker 1: that this morning, from this consensus around to goldilocks and 541 00:25:50,400 --> 00:25:53,120 Speaker 1: a soft landing to suddenly something more in the Neil 542 00:25:53,240 --> 00:25:56,639 Speaker 1: data and the Katie Kaminski camp of hold on a second, 543 00:25:56,880 --> 00:25:59,000 Speaker 1: What if the FED does pause and then they have 544 00:25:59,040 --> 00:26:01,480 Speaker 1: to high rates again next year and all of those 545 00:26:01,560 --> 00:26:04,040 Speaker 1: rate cuts that are getting priced in are absolutely off 546 00:26:04,040 --> 00:26:06,080 Speaker 1: the table. Are you moving to that side at all? 547 00:26:06,560 --> 00:26:09,200 Speaker 9: So I think what's interesting if we take a step back, 548 00:26:09,240 --> 00:26:10,560 Speaker 9: is that at the start of the year, everything was 549 00:26:10,600 --> 00:26:13,520 Speaker 9: going really well. You know, Europe avoided a recession, China 550 00:26:13,600 --> 00:26:16,080 Speaker 9: reopened and had a really good first quarter, the US 551 00:26:16,200 --> 00:26:18,680 Speaker 9: data was better than expected, and everybody kind of got 552 00:26:18,680 --> 00:26:21,000 Speaker 9: this warm, fuzzy feeling that it was all going to 553 00:26:21,040 --> 00:26:25,560 Speaker 9: be okay. What's happened more recently China stalling out, Europe's 554 00:26:25,760 --> 00:26:29,240 Speaker 9: showing some serious cracks, particularly in manufacturing, and an inflation 555 00:26:29,320 --> 00:26:31,600 Speaker 9: story that isn't really resolving itself the way that people 556 00:26:31,640 --> 00:26:34,880 Speaker 9: would expect. I'm not sure that we have more clarity on, 557 00:26:35,040 --> 00:26:36,840 Speaker 9: you know, where we're going to be twelve months from now, 558 00:26:36,880 --> 00:26:40,520 Speaker 9: but I think you're seeing investors begin to entertain the 559 00:26:40,640 --> 00:26:43,240 Speaker 9: idea that maybe a soft landing isn't a guarantee, and 560 00:26:43,280 --> 00:26:45,680 Speaker 9: I think that's what's causing market volatility to pick up here. 561 00:26:45,720 --> 00:26:47,880 Speaker 3: Well, I've struggled with this year, David, and we spoke 562 00:26:47,960 --> 00:26:50,800 Speaker 3: to Steve Chevron about this yesterday he said that when 563 00:26:50,800 --> 00:26:53,000 Speaker 3: growth is scares you buy growth in the equity market, 564 00:26:53,000 --> 00:26:54,960 Speaker 3: and I said, well, it's odd because we've had this 565 00:26:55,000 --> 00:26:56,879 Speaker 3: growth round a yet today in the face of a 566 00:26:56,920 --> 00:27:00,960 Speaker 3: series of upside surprises in the us A, what is 567 00:27:01,000 --> 00:27:01,480 Speaker 3: that about? 568 00:27:01,880 --> 00:27:03,960 Speaker 9: So I think that you know, somebody actually said that 569 00:27:03,960 --> 00:27:06,000 Speaker 9: exact same thing to me yesterday, and so I got 570 00:27:06,040 --> 00:27:07,080 Speaker 9: to practice this conversation. 571 00:27:07,160 --> 00:27:09,800 Speaker 3: But I think because they listened to us dibata exactly. 572 00:27:09,840 --> 00:27:13,320 Speaker 9: But I think, you know, the issue here with buying 573 00:27:13,400 --> 00:27:16,280 Speaker 9: growth in anticipation of slower growth is that we had 574 00:27:16,280 --> 00:27:18,520 Speaker 9: the AI boom over the course of the past few months, 575 00:27:18,720 --> 00:27:21,439 Speaker 9: and so valuation is way off size. If you know, 576 00:27:21,520 --> 00:27:24,359 Speaker 9: these were ten multiple points cheaper on some of the 577 00:27:24,359 --> 00:27:26,480 Speaker 9: big names, we'd be more interested. But given where they're 578 00:27:26,520 --> 00:27:29,800 Speaker 9: trading today, it's a very difficult case to buy risk 579 00:27:29,840 --> 00:27:32,800 Speaker 9: assets at a valuation that feels extended when you see 580 00:27:32,840 --> 00:27:35,600 Speaker 9: some potential clouds on the horizon. And so we're leaning 581 00:27:35,640 --> 00:27:39,159 Speaker 9: more into value, more defensive names, the dividend payers, and 582 00:27:39,200 --> 00:27:40,560 Speaker 9: a big part of that is the price that we're 583 00:27:40,600 --> 00:27:42,720 Speaker 9: being asked to pay to hold those hold those assets. 584 00:27:43,080 --> 00:27:45,320 Speaker 1: Well, are we looking also at energy companies that are 585 00:27:45,320 --> 00:27:46,879 Speaker 1: really going to be coming to the fore and actually 586 00:27:46,880 --> 00:27:47,800 Speaker 1: becoming more popular. 587 00:27:48,000 --> 00:27:49,919 Speaker 9: So energy, you know, I feel like there have been 588 00:27:49,920 --> 00:27:52,160 Speaker 9: a number of false starts over the years where people 589 00:27:52,160 --> 00:27:54,119 Speaker 9: get really excited about energy and then it kind of 590 00:27:54,119 --> 00:27:56,600 Speaker 9: falls flat on its face. I do think that, you know, 591 00:27:56,680 --> 00:28:00,159 Speaker 9: the underlying businesses from an operating perspective, are in much 592 00:28:00,160 --> 00:28:02,199 Speaker 9: better shape than they were, say five years ago, and 593 00:28:02,240 --> 00:28:04,560 Speaker 9: so if you get that tailwind of higher oil prices, 594 00:28:04,760 --> 00:28:06,840 Speaker 9: you get that march and expansion, and you continue to 595 00:28:06,880 --> 00:28:10,240 Speaker 9: have this focus on returning cash to shareholders, energy could 596 00:28:10,240 --> 00:28:12,440 Speaker 9: be one bright spot, perhaps in the short to medium term. 597 00:28:12,440 --> 00:28:14,800 Speaker 9: And I think that's what makes this market so difficult 598 00:28:14,840 --> 00:28:17,879 Speaker 9: to figure out. Right, we're talking about a slower growth 599 00:28:17,960 --> 00:28:20,840 Speaker 9: environment potentially in twenty twenty four, but we're talking about 600 00:28:20,920 --> 00:28:23,439 Speaker 9: energy companies and airlines that have pricing power. And so 601 00:28:23,520 --> 00:28:25,080 Speaker 9: which side of the trade do you want to be on? 602 00:28:25,160 --> 00:28:26,639 Speaker 9: Are we going to get the soft landing and do 603 00:28:26,680 --> 00:28:29,439 Speaker 9: you want to lean into that cyclicality or do you 604 00:28:29,440 --> 00:28:31,240 Speaker 9: see clouds on the horizon? And maybe we don't want 605 00:28:31,240 --> 00:28:32,800 Speaker 9: to play it a little bit more defensively. 606 00:28:32,840 --> 00:28:34,440 Speaker 1: I want to ask you kind of a sensitive question. 607 00:28:34,520 --> 00:28:37,000 Speaker 1: It's not about cruise lines, but I know that other 608 00:28:37,040 --> 00:28:40,240 Speaker 1: people at your firm have been talking about the entire 609 00:28:40,280 --> 00:28:44,360 Speaker 1: yield curve at three percent and everything going back lower. 610 00:28:45,240 --> 00:28:48,240 Speaker 1: Are there any shifts or arguments right now within the 611 00:28:48,320 --> 00:28:51,240 Speaker 1: team about this idea that you could have higher for 612 00:28:51,360 --> 00:28:54,280 Speaker 1: longer and that maybe these higher longer term yields are 613 00:28:54,320 --> 00:28:54,880 Speaker 1: here to stay. 614 00:28:55,360 --> 00:28:58,480 Speaker 9: So what I would say is that the dispersion across 615 00:28:58,520 --> 00:29:01,600 Speaker 9: the research community of Walstad is nearly identical to the 616 00:29:01,640 --> 00:29:03,760 Speaker 9: dispersion of views that we have internally. You know, there 617 00:29:03,800 --> 00:29:07,560 Speaker 9: are lots of people in very different places. I think 618 00:29:07,600 --> 00:29:10,440 Speaker 9: what the FED would like to see over time is 619 00:29:10,480 --> 00:29:13,680 Speaker 9: a positive real yield curve that slopes upward. So I'm 620 00:29:13,720 --> 00:29:15,280 Speaker 9: in the higher for longer camp, and I think when 621 00:29:15,280 --> 00:29:17,719 Speaker 9: they do cut, maybe they go back down to two 622 00:29:17,760 --> 00:29:19,040 Speaker 9: and a half. Is two and a half really the 623 00:29:19,360 --> 00:29:21,440 Speaker 9: neutral rate in the type of environment that we find 624 00:29:21,480 --> 00:29:23,160 Speaker 9: ourselves in. I do think that we need to be 625 00:29:23,200 --> 00:29:26,480 Speaker 9: prepared for an environment where rates stay higher for longer, 626 00:29:26,880 --> 00:29:29,480 Speaker 9: But I don't think that's a bad thing. Right interest 627 00:29:29,560 --> 00:29:31,760 Speaker 9: rates that allows markets to do what they're supposed to do, 628 00:29:31,760 --> 00:29:34,160 Speaker 9: which is differentiate between winners and losers, and that hasn't 629 00:29:34,160 --> 00:29:36,320 Speaker 9: been the case for the past fifteen years. So this 630 00:29:36,360 --> 00:29:39,120 Speaker 9: could be a better environment for value, better environment for 631 00:29:39,160 --> 00:29:41,560 Speaker 9: active management, better environment for fixed income. You know, a 632 00:29:41,600 --> 00:29:44,080 Speaker 9: world that maybe feels and looks a little bit more 633 00:29:44,120 --> 00:29:46,520 Speaker 9: like the environment we were in prior to two thousand 634 00:29:46,560 --> 00:29:46,840 Speaker 9: and eight. 635 00:29:46,960 --> 00:29:49,800 Speaker 3: So the boss is state the curves. I think so okay, 636 00:29:49,960 --> 00:29:53,600 Speaker 3: because we've just had a record. Potentially this came from 637 00:29:53,600 --> 00:29:57,640 Speaker 3: Cameron christ yesterday two hundred and seventeen consecutive week days 638 00:29:58,200 --> 00:30:01,440 Speaker 3: in six o seven, this ye curve was in inverted territory. 639 00:30:01,560 --> 00:30:04,520 Speaker 3: Yesterday was the two hundred and sixteenth, So today is 640 00:30:04,560 --> 00:30:06,880 Speaker 3: two seventeen. Can you believe it's been that long? 641 00:30:07,440 --> 00:30:10,720 Speaker 1: It is nuts, right, especially considering the fact that people 642 00:30:10,800 --> 00:30:13,200 Speaker 1: used to say this is a sure thing for recession. 643 00:30:13,560 --> 00:30:14,360 Speaker 5: Where is that? Now? 644 00:30:14,440 --> 00:30:15,400 Speaker 3: What do I read into that? 645 00:30:15,880 --> 00:30:17,960 Speaker 9: So I think this is this is the issue in 646 00:30:18,000 --> 00:30:20,280 Speaker 9: the current environment, right, we know all of the economic 647 00:30:20,320 --> 00:30:23,320 Speaker 9: models broke during COVID. You know, forecasting is nowhere near 648 00:30:23,360 --> 00:30:26,160 Speaker 9: as straightforward in this environment as it was prior to 649 00:30:26,200 --> 00:30:28,880 Speaker 9: the pandemic. And so what you see amongst the investment 650 00:30:28,880 --> 00:30:31,600 Speaker 9: community is just this very wishy washy behavior where it's 651 00:30:31,600 --> 00:30:33,160 Speaker 9: one side of the boat, then it's the other side 652 00:30:33,160 --> 00:30:35,520 Speaker 9: of the boat. It's you know, forty percent of professional 653 00:30:35,560 --> 00:30:38,080 Speaker 9: forecasters saying we're going to have a recession that then 654 00:30:38,120 --> 00:30:40,320 Speaker 9: doesn't materialize, and now everybody thinks we're going to have 655 00:30:40,320 --> 00:30:42,760 Speaker 9: a soft landing. I think what we need to recognize 656 00:30:42,800 --> 00:30:47,440 Speaker 9: is five times this year, the unprecedented nature of everything 657 00:30:47,480 --> 00:30:50,480 Speaker 9: that's gone on, particularly the fiscal response. We don't have 658 00:30:50,520 --> 00:30:52,400 Speaker 9: a playbook for that because we haven't seen a fiscal 659 00:30:52,440 --> 00:30:55,240 Speaker 9: response like the one we saw at COVID in decades, Right. 660 00:30:55,240 --> 00:30:57,640 Speaker 3: David, thank you. This was great. They did levis to 661 00:30:57,720 --> 00:30:59,040 Speaker 3: JP Milk and Asset Management. 662 00:30:59,200 --> 00:31:03,200 Speaker 1: Subscribe Bomberg Surveillance Podcast on Apple, Spotify and anywhere else 663 00:31:03,240 --> 00:31:06,560 Speaker 1: you get your podcasts. Listen live every weekday starting at 664 00:31:06,560 --> 00:31:09,840 Speaker 1: seven am Eastern on Bloomberg dot Com, the iHeartRadio app, 665 00:31:10,040 --> 00:31:13,040 Speaker 1: tune In, and the Bloomberg Business app. You can watch 666 00:31:13,120 --> 00:31:16,840 Speaker 1: us live on Bloomberg Television and always on the Bloomberg Terminal. 667 00:31:17,040 --> 00:31:20,280 Speaker 1: Thanks for listening. I'm Lisa Abramowitz, and this is Bloomberg