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Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. Your

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Speaker 1: top story, quite clearly what happened with Sarly Arabia through

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Speaker 1: the weekend. Sari A Ramco losing about five point seven

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Speaker 1: million barrels per day of output after ten unmanned error

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Speaker 1: vehicles struck the world's biggest crude processing facility as well

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Speaker 1: as the Kingdom's second largest oil field. I'm pleased to

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Speaker 1: say that joining us on the phone, Harry Chill and

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Speaker 1: Garian joined us now BMP parabas head of Commodity market Strategy.

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Speaker 1: Great to have you with us, Harry. Let me begin

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Speaker 1: with the first and obvious question. How long will it

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Speaker 1: take a Ramco to bring disrupted production back on line?

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Speaker 1: It's a consequence how long can Saudi tap inventories without

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Speaker 1: disrupting flows to customers. I think that's a really difficult question.

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Speaker 1: Right now. We don't have yet a status report in

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Speaker 1: terms of damage, in particular at the Upcake refinery. As

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Speaker 1: you know, Aramco announced on Sunday that it should produce

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Speaker 1: such a report within forty eight hours, So I guess

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Speaker 1: we're gonna have to wait and see what the level

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Speaker 1: of damage is. UH. Certainly Saudi Arabia, in terms of

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Speaker 1: its commitments to its customers, will be able to keep

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Speaker 1: supplying the market and as storage at its main all

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Speaker 1: terminals like RUSTLANDEUF has pre position oil all across the world,

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Speaker 1: from Europe to Asia, UH to the to the US market.

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Speaker 1: So I think that they could easily go a month

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Speaker 1: in terms of meeting their commitments. But really the key

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Speaker 1: issue is the level of damage and Upcake because that

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Speaker 1: processing facility is key to making marketable commercial crude for

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Speaker 1: export to customers. We'll talk about the geopolitics in just

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Speaker 1: a moment, Harry, But the questions about the vulnerability of

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Speaker 1: a Ramco's infrastructure, I don't think it going anywhere, are they? Well,

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Speaker 1: this recent attack really is an escalation in terms of

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Speaker 1: the ability to reach Saudi oil infrastructure by in theory

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Speaker 1: Houti rebels backed by Iran UH to tend strong drone attack,

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Speaker 1: which obviously has not yet happened before the previous attacks

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Speaker 1: by drones are in in comparison or relatively low level

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Speaker 1: in terms of importance. So the question really here is

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Speaker 1: whether or not these Houti rebels have the means to

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Speaker 1: replicate such attacks in the future. So, yes, we have

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Speaker 1: an escalation in terms of geopolitical risk on oil supply,

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Speaker 1: and the market is going to have to reprice that

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Speaker 1: that risk premium. So Harry, let's talk about the geopolitics

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Speaker 1: over the weekend. Secretary Pompey are very quick on Twitter

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Speaker 1: to come out and say the Tayran is behind nearly

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Speaker 1: a hundred attacks on Saudi Arabia, while Rahanigans a reef

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Speaker 1: pretend to engage in diplomacy. Amid all the calls for

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Speaker 1: the escalation, Iran is now launched an presidented attack on

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Speaker 1: the world energy supply. There is no evidence the attacks

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Speaker 1: came from Yemen. The president has been very restraint compared

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Speaker 1: to Secretary Pompeio. The presidents saying the following that Saudi

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Speaker 1: Arabia's all supply was attacked. There is no reason to

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Speaker 1: believe that we know. There is a reason to believe

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Speaker 1: that we know. The culprit rather are locked and loaded,

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Speaker 1: dependent on verification, but are waiting to hear from the

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Speaker 1: Kingdom as to who they believe was the cause of

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Speaker 1: this attack and under what terms we would proceed. What

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Speaker 1: do you make of the information vacuum over the weekend

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Speaker 1: and into the beginning of the week carry well in

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Speaker 1: terms of like identifying culprits. Of course, the US was

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Speaker 1: prompt to point a finger at Iran, but the President's

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Speaker 1: communication has been, as you as you just mentioned, extremely reserved,

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Speaker 1: not mentioning any names, because in the end, whatever conclusion

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Speaker 1: they're going to reach, you're gonna have to think of

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Speaker 1: what would be called a proportionate or measured response to

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Speaker 1: the attack that that was committed. So I guess again

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Speaker 1: being extremely cautious in terms of warning. And however, you

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Speaker 1: you always have this differences in communication, and you've highlighted

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Speaker 1: them between the White House being a little bit more

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Speaker 1: cautious than the the U S Secretary of State. Now

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Speaker 1: in terms of the geo politics. Was really interesting is

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Speaker 1: the fact that this attack has really come shortly after

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Speaker 1: the dismissal of John Bolton as National Security Advisor, and

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Speaker 1: that had lifted I guess some hopes that the US

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Speaker 1: may adopt a different strategy towards Iran, and even some

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Speaker 1: speculating the President Trump's and Ronnie could meet at the

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Speaker 1: UN Generally Assembly UH albeit informally. Of course, the oughts

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Speaker 1: of any such meeting now have changed greatly the recent attacks. Harry,

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Speaker 1: we are thrilled to start our hour with you with

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Speaker 1: b MP prry By. You've been around since with you, Harry,

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Speaker 1: you were with John Rockefell or I think in the

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Speaker 1: Pennsylvania mountains there a few years back, looking for the

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Speaker 1: first barrel oil in Pennsylvania. It's not your well, it's

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Speaker 1: not your father's oil crisis. Our dependency on oils less.

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Speaker 1: And as Greg Valier brilliantly says in his note this morning,

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Speaker 1: the US is basically oil sufficient and with this attack

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Speaker 1: China gets hammered. Do you agree with Mr Vllier? Well,

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Speaker 1: I would. I would say that the US is not

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Speaker 1: necessarily self sufficient, as a large surplus of light oil

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Speaker 1: and a lot of its refineries are dependent on a

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Speaker 1: heavier quality of oil. So the US is, rather than

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Speaker 1: being energy independent, is basically becoming a very large energy exporter,

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Speaker 1: so rivaling in production the likes of Saudi and Russia

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Speaker 1: and emerging onto its own in terms of UH uh

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Speaker 1: AN exporting superpower. Now in terms of implications, of course, Uh,

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Speaker 1: Saudi Areba supplies multiple countries, but the share of Saudi

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Speaker 1: crude imforce into the US has steadily declined. And yes,

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Speaker 1: China and a number of other Asian countries a highly

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Speaker 1: dependent on Middle Eastern oil coming through the vital passageway

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Speaker 1: of the Strait of hormones. So I tend to say that,

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Speaker 1: you know, Uh, in terms of relative impacts, of course

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Speaker 1: the sheriff Saudi imports into the US as lesson. But

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Speaker 1: and however Asian countries themselves are far more exposed. Yes,

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Speaker 1: some people might say we've been quite complacent about the

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Speaker 1: geopolitical risk premium that should have been in the all market.

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Speaker 1: Some people might still be saying that this morning we've

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Speaker 1: had a rather big disruption to crude supplies, and that's

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Speaker 1: an understatement, And yet crude is up by what eight

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Speaker 1: nine in a grand scheme of things, Harry, I don't

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Speaker 1: think that's the move a lot of people expected. Well,

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Speaker 1: I think you know, when it when it comes to

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Speaker 1: the price reaction, we were going to get that knee

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Speaker 1: jerk reaction that you mentioned earlier up on the Asian

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Speaker 1: open because there's very little liquidity and number of people

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Speaker 1: were positioned to buy into into crude. However, as we

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Speaker 1: get more reports, including from the likes of the Wall

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Speaker 1: Street Journal, indicating that a third of production could swiftly

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Speaker 1: return and that that is possible because production has been

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Speaker 1: shut down on a precautionary basis as well. And it

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Speaker 1: really just comes back down to what is a damn

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Speaker 1: which assessment that up, because if the damage is modest,

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Speaker 1: then we should see us for of Saudi supplies. Harry, Great,

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Speaker 1: We're all going to go back. Daniel, you'regens surprise here

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Speaker 1: to get updated again. Mr Chilling gurry in with b

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Speaker 1: MP Perry Bond has just given us a great perspective

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Speaker 1: over the years. Chin Is, As we get to our

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Speaker 1: esteemed guest, why don't you bring in Michael Dart in

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Speaker 1: any number of ways to Twitter. I just want to

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Speaker 1: keep everyone up to speed on the news flow. First

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Speaker 1: of all, we've got some reporting here at Bloomberg Sandy

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Speaker 1: Window said to be less optimistic on speed of the

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Speaker 1: output recovery crude with a little bit of a pop

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Speaker 1: off the back of that now up ten percent. Just

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Speaker 1: that headline. Tom goes to show you that the concern

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Speaker 1: is a little bit beyond the speed of output recovery

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Speaker 1: and towards the kind of geopolitical risk preming that we

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Speaker 1: should now be baking in. But for me, the top

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Speaker 1: news overnight, if we did not have these attacks on

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Speaker 1: a RAMCO weekend, would be the Chinese Economic Day. Talk

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Speaker 1: about that. It was dreadful. Industrial production came in at

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Speaker 1: four point full percent. It is the weakest single months

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Speaker 1: since to Nazan and two and it really doesn't look

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Speaker 1: good at sold. And in early September, Michael Darta Mcamp

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Speaker 1: Partners wrote a pristine paragraph that is data acclaim on

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Speaker 1: the vixcelient relative rate, is China gonna have a new

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Speaker 1: lower terminal rate? Is the United States and the rest

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Speaker 1: of the developed world have a new lower terminal rate? Oh? Tom,

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Speaker 1: I think there's no doubt about that. Their structural reasons

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Speaker 1: that China is slowing down, obviously considering slower and lower

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Speaker 1: population growth. And then on top of it, these trade

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Speaker 1: shocks are certainly leaving a mark. I mean, you know,

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Speaker 1: the trade wars hurting the US, hurting US manufacturing, but

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Speaker 1: it's certainly damaged China more. And you can see that

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Speaker 1: in the data released today. I mean I mean John

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Speaker 1: Joyce Chang last week of Morgan Stanley shocked with four

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Speaker 1: and a half sent as their vector their target out there.

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Speaker 1: No one believes Joyce Chang premier League. Shang was speaking

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Speaker 1: to Russian media of the night, actually said it's going

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Speaker 1: to be difficult to hit six percent. Just how difficult

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Speaker 1: will it be, Mike to hit six percent? Yeah, I

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Speaker 1: mean it's you know, it's a bit of an arbitrary number,

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Speaker 1: but with data like what we're seeing today, it certainly

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Speaker 1: raises the question. I also look at some of the

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Speaker 1: monetary growth trends in China. I mean, if you look

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Speaker 1: at them, one in them to growth, these Milton Friedman indicators,

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Speaker 1: they've been very, very weak. So maybe we shouldn't be

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Speaker 1: completely startled that we're getting some fairly soft macro data

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Speaker 1: out of China. The other thing is, you know, you've

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Speaker 1: got the dollar levitating this year to you know, to

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Speaker 1: President Trump's chagrin, and that tends to to hurt emerging markets.

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Speaker 1: It tends to be associated with emerging market equity and

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Speaker 1: fixed income under performance and slowing emerging market growth rates.

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Speaker 1: And so you know, we have that as part of

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Speaker 1: the backdrop as well. All of this coming at a

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Speaker 1: time where we've just had a massive back up and

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Speaker 1: treachery yields yield last week up more than thirty basis points. Now,

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Speaker 1: I'm going to ask you a question I've been asking everybody,

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Speaker 1: and everyone wants the answer to this. I wish we

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Speaker 1: had a crystal bowl to know what it would be.

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Speaker 1: But just how are you framing this right now? A

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Speaker 1: correction in the context of a massive move through or

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Speaker 1: the beginning of something new. I don't think this is

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Speaker 1: the beginning of something new. I think what had happened

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Speaker 1: is and especially if you look at that that last

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Speaker 1: leg of the drop in the tenure yield from two percent,

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Speaker 1: it was really associated with the trade war taking a sudden,

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Speaker 1: an unexpected turn for the worse. And so I think

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Speaker 1: a combination of things have been lifting yields. One is

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Speaker 1: that there maybe it's unfounded, but there is now a

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Speaker 1: renewed sense of optimism that the trade war may ease,

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Speaker 1: that President Trump maybe moving towards some kind of a deal,

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Speaker 1: even if it's a minor deal. There were also fears

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Speaker 1: of a hard brexit. Those fears have receded to some degree,

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Speaker 1: uh in the macro data in the US while it's

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Speaker 1: certainly not super robust, we're not falling off a cliff.

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Speaker 1: And you saw that with retail sales this past week.

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Speaker 1: Everybody follows you, Michael Dard, going, great, why are we

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Speaker 1: ner record highs on equities? I mean, how do you

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Speaker 1: just flip the reciprocal on the new terminal value when

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Speaker 1: it gives you higher equity valuations? I don't buy it.

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Speaker 1: What's your conviction in the stock market? Well, I would,

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Speaker 1: you know, take a more cautious stance on on equities here,

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Speaker 1: just given the fact that we're pretty close to the

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Speaker 1: highs of the year, and I still think there are

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Speaker 1: business cycle risks out there. So even with this reversal

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Speaker 1: and yields that John mentioned, you still have the treasury

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Speaker 1: yield curve inverted. This will be the seventeen consecutive week.

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Speaker 1: You know, if if today's action continues throughout the balance

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Speaker 1: of the week, where the ten year yield has been

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Speaker 1: you know, has has been inverted visa VI the three

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Speaker 1: month T bill. So ten year yields being below tea

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Speaker 1: bills and a sustained fashion you know, has preceded every

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Speaker 1: recession going back to the ninet sixties. And so I

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Speaker 1: do think there's certainly call for some caution here on

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Speaker 1: risk assets. Would you make the argument, Mike, just to

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Speaker 1: round things up, that maybe we got too pessimistic, that

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Speaker 1: if you look at the global surprise indicators finally we

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Speaker 1: turned positive in the last couple of weeks, that the

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Speaker 1: estimates the forecast just got too pessimistic versus the reality

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Speaker 1: of the actual day that was coming through. Yeah, I

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Speaker 1: think that's that's a totally reasonable argument. Um. I mentioned

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Speaker 1: that big fall off from the two percent level and

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Speaker 1: the tenure treasury yield just seem to be associated with

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Speaker 1: a lot of pessimism centered around the trade war and

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Speaker 1: in some of these other um global factors that enforces

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Speaker 1: that have been creating a falling confidence. So if those reverse,

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Speaker 1: you'd expect the bond yields to to reverse. The question

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Speaker 1: is do we keep running up from here and yields?

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Speaker 1: And I'd be a little more skeptical cautious on that view.

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Speaker 1: Michael Darted, thank you so much, greatly appreciated m came partners.

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Speaker 1: Too much news, slow, too little time to talk. We'll

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Speaker 1: get a a longer discussion. EIMR a can Oxford Institute

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Speaker 1: for Energy. It is a spectacular twenty pages of dense, dense,

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Speaker 1: dense microeconomics on how we come up with an oil

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Speaker 1: price That leads us to Ted Alden. Edward Alden's Failure

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Speaker 1: to Adjust How Americans Got Left Behind was a superb

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Speaker 1: book a number of years ago and still highly valuable

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Speaker 1: to anybody interested in our trade world. And Ted Alden

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Speaker 1: joins us from our Washington studios right now, Ted, I

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Speaker 1: want to rip up the script here and talk not

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Speaker 1: about the gloom of our failure to adjust. But we

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Speaker 1: adjusted to oil. We had oil shock one oil shock too,

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Speaker 1: and somehow America came out of this more independent on

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Speaker 1: hydrocarbon's how do we do it well? I may not

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Speaker 1: be the best guy to ask that on the energy front,

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Speaker 1: but we got right now. You not not fair enough,

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Speaker 1: fair enough. But I think there is a general point

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Speaker 1: which is one of the great strengths of the American

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Speaker 1: economy over many decades now, is that it is highly adaptable.

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Speaker 1: I mean, we adapted to the all shocks of the seventies.

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Speaker 1: I mean I was pretty young then, but I remember

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Speaker 1: quite well. I remember the gas lineups, and it was

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Speaker 1: a difficult transition, but we made it. We adjusted to

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Speaker 1: the Japanese competition of the nineteen eighties and the nineteen nineties.

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Speaker 1: We are a highly flexible, adaptable economy, but it but

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Speaker 1: it takes effort. It actually takes both business and government

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Speaker 1: and and some of the initiatives. I think we're gonna

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Speaker 1: need to adapt to this generation of shocks we're not

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Speaker 1: seeing come out, partly because of the dysfunction of our

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Speaker 1: political system. Right what's been amazing is the productivity story

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Speaker 1: as well for US crewed it's been a technology story

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Speaker 1: as much as technology been absolutely incredible tet and now

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Speaker 1: there's a lot of people trying to figure out every

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Speaker 1: time we have some kind of oil shock one way

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Speaker 1: or the other, trying to figure out on net whether

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Speaker 1: higher or lower oil prices is what's best for the

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Speaker 1: American economy. How on earth do you make that calculation? Well,

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Speaker 1: I mean, I think if you look at the growth numbers,

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Speaker 1: it's it's pretty clear that higher oil prices are harmful

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Speaker 1: to the US economy. Pretauld be such a large oil

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Speaker 1: producer now that on net it's a good thing. But

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Speaker 1: your point is it's not as straightforward to calculation as

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Speaker 1: it was to say in the seventies and eighties. Then

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Speaker 1: you know, Ohio, oil prices across the board were bad. Now,

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Speaker 1: because we're such a large producer, it hurts the US

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Speaker 1: economy less than it does other competitor economy, So it's

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Speaker 1: a more difficult calculation, absolutely, no question. So what does

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Speaker 1: it mean for policy going forward? Elizabeth Warren sent it

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Speaker 1: to Warren coming out quite recently on her Twitter accounts

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Speaker 1: saying she would band fracking everywhere's head, I mean, on

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Speaker 1: the service of things. It's a rather large statement, and

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Speaker 1: no one has any idea whether she can actually do that.

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Speaker 1: But what do you make of those kind of statements

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Speaker 1: from the Democrats. Well, it's I mean, electorally, that's a

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Speaker 1: challenging one, right, mean, fracking has helped a lot of economies,

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Speaker 1: local economies around the country. There are obviously significant environmental issues. Again,

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Speaker 1: I think that the history tends to suggest that those

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Speaker 1: can be managed in a way that you don't have

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Speaker 1: a complete trade off between growth and environmental protection. I worry,

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Speaker 1: and you know, again, as Tom and I was getting

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Speaker 1: a little out of my areas here. But but you know,

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Speaker 1: one of the things that happened in the seventies with

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Speaker 1: the creation of ep A and other things, was that

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Speaker 1: that you had a set of regulations go into place

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Speaker 1: that allowed growth to proceed, but also focused on environmental

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Speaker 1: protection where it really matters. I worry about the dismantling

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Speaker 1: of those things going on in the current administration. I

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Speaker 1: don't think it's in either or. I think you can

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Speaker 1: protect the environment and do the things that are necessary

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Speaker 1: for strong growth. We welcome all of you on Bloomberg Surveillance.

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Speaker 1: Edward Alden with US. He's with the Council on Foreign Relations.

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Speaker 1: His book Failure to Adjust. John Farrell and I are

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Speaker 1: adjusting to more data checks, futures of negative eleven oil

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Speaker 1: seventy two ish, the high was seven right down to

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Speaker 1: sixty eight dollars a barrel, and Brent and then John,

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Speaker 1: we got down here sixty five is should we've come

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Speaker 1: back a little bit last our a little bit of

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Speaker 1: a lift here off the President with a couple of

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Speaker 1: tweets that I'd like to bring to you all just briefly,

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Speaker 1: right now, right here, right now. In China shrank most

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Speaker 1: in three years due to China's big evaluation of their

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Speaker 1: currency coupled with monetary stimulus. Federal Reserve not watching Will

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Speaker 1: the Fed ever get into the game. The dollars strongest ever,

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Speaker 1: really bad for export to no inflation, highest interest rates

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Speaker 1: the United States because of the FED is paying a

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Speaker 1: much higher rate than other competing countries. They can't believe

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Speaker 1: how lucky they are that j Palal and the Fed

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Speaker 1: don't have a clue. And now on top of it all,

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Speaker 1: they all here big interest rate drop stimulus is he

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Speaker 1: listened to us because he knows we have old us.

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Speaker 1: So Ted just talked to me about this because many

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Speaker 1: people find it hard to reconcile the call for stimulus

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Speaker 1: with the projection of the idea from this administration that

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Speaker 1: this economy is totally fine and rock solid. Well, I mean,

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Speaker 1: has there ever been of president who didn't want lower

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Speaker 1: interest rates going into his re election year? So most

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Speaker 1: of them have not been quite so public about bashing

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Speaker 1: the Federal reserve. But but this is something that presidents

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Speaker 1: always want. I mean that the economy can never be

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Speaker 1: too strong going into an election year. Trump's clearly not

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Speaker 1: worried about overheating, and to be fair, there aren't a

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Speaker 1: lot of signs of overheating. Problem is the FED doesn't

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Speaker 1: have a lot more ammunition, right, I mean it could

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Speaker 1: a little faster, but but it's not a whole lot

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Speaker 1: it can do to further boost the economy going into twenties.

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Speaker 1: It's micro economics Monday. We've been doing that with oil

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Speaker 1: and and it's been a joy. Let's do it with

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Speaker 1: ted Alden now. And trade. Part of this is the

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Speaker 1: substitution effect. If we, as a president clearly in this tweet,

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Speaker 1: suggests it's US and China, ted Alden is gonna say, no,

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Speaker 1: it's not, and that there are indirect and direct leakages

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Speaker 1: where the trade slips out of China to a dynamic

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Speaker 1: with other countries. How evident, how pronounced is that subtitution

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Speaker 1: affect Well, you're seeing it certainly in in Asia, particularly

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Speaker 1: with the growth of exports from Vietnam. And you're seeing

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Speaker 1: this administration now target Vietnam and say, oh, you know,

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Speaker 1: Vietnam's trade surplus with the United States is soaring. That's

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Speaker 1: the problem we need to do something about. So so

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Speaker 1: that's been the most significant kind of leakage we've seen already,

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Speaker 1: but it will certainly grow if the if the trade

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Speaker 1: war continues. In a lot of ways, we're still in

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Speaker 1: the fairly early stages here because what's at stake is

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Speaker 1: long term investment decisions by companies. Are they confident that

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Speaker 1: they can continue to export from China to the United States.

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Speaker 1: If the answer is yes, they probably stay put. If not,

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Speaker 1: they have to think about either relocating existing investments or

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Speaker 1: where they make future investments. So so there's a very

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Speaker 1: long tail on this. Yeah, it's gonna be interesting. I

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Speaker 1: mean within that long tail and just simple immediate discussions

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Speaker 1: of October. What's on Ted Alden's date calendar for October

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Speaker 1: to indicate how this trade war unravels or how this

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Speaker 1: trade war moves forward. Well, you know, always hesitate to

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Speaker 1: say that, you know, the next round of negotiations is

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Speaker 1: the critical one, but I think the one coming up

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Speaker 1: between the United States and China in October is critical.

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Speaker 1: The last couple of efforts to restart the talks since

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Speaker 1: they broke down and may have been catastrophic failures that

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Speaker 1: have resulted in further escalation. I think if there's going

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Speaker 1: to be any sort of reasonably durable truce, it's going

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Speaker 1: to have to happen at this October meeting and then

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Speaker 1: maybe be cemented when Trump and Chinese President juja Paying

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Speaker 1: meet at at a peck in Chile in November. So

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Speaker 1: I think I'm clearly the markets are gonna be watching

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Speaker 1: this meeting very closely. They are hopeful now because of

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Speaker 1: the gestures on each side, the Chinese deciding not to

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Speaker 1: further raise tariffs on agriculture imports, the Trump delaying the

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Speaker 1: next round of US figure so it's a big meeting. Clearly,

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Speaker 1: it's slipping under the radar some really weak Chinese economic data,

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Speaker 1: industrial output rising just four point four percent from a

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Speaker 1: year earlier in August. A lot of people might say

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Speaker 1: that sounds good for the rest of the world. It

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Speaker 1: might be, but for China it's not. It's the lowest

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Speaker 1: for a single month since two thousand and two. Retail

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Speaker 1: sales also coming in below expectations. We've got a fantastic

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Speaker 1: guest to talk to us about it, Henry had A Trays,

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Speaker 1: Vada Pander's director of Economic policy Research. Henry had to

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Speaker 1: just your early reaction to that economic data from China overnight.

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Speaker 1: Thanks for having me. Yeah, I mean, as you mentioned,

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Speaker 1: it's the worst number since two thousand of two, So

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Speaker 1: obviously China is facing some pressure, and I think the

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Speaker 1: Trump administration is watching that very closely. As we've discussed earlier. Um,

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Speaker 1: you know, the administration feels very confident that this trade

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Speaker 1: war is having a much more profound impact on China's economy,

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Speaker 1: and the President she can't sustain this the way that

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Speaker 1: President Trump. Do you you to that assessment? Do you

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Speaker 1: agree with that? I do not, And I more importantly

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Speaker 1: don't see any of the indicators coming out of China

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Speaker 1: in terms of the verbiage that either President She or

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Speaker 1: any of his folks downstream are using against the United States.

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Speaker 1: They're saying, look, this is what happens when foreign aggressors

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Speaker 1: come in. You be the communist party to leave the country.

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Speaker 1: We can fix it. We're the ones who will stand

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Speaker 1: up to the United States. And the economic nationalism that

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Speaker 1: you see, um you know, most clearly identified in the

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Speaker 1: Japan versus South Korea fights is something that I think

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Speaker 1: they're stoking. Hey, let's get nationalistic support. Chinese companies don't

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Speaker 1: buy a Ford, buy a Chinese manufacturing book car. And

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Speaker 1: I think that's the direction they're which is not what

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Speaker 1: the Trump administration is trying to telegraph the folks here. So, Henrietta,

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Speaker 1: when you look at the economy just away from the politics,

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Speaker 1: what on depends a more constructive view of the Chinese

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Speaker 1: economy right now. I think with the Chinese economy, you

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Speaker 1: have one thing that's most important, and that's longevity. And

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Speaker 1: that is a sense that they don't need to respond to,

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Speaker 1: you know, the Iowa caucuses or a November two thousand

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Speaker 1: twenty elections. They can plan for. They can plan for.

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Speaker 1: And if you look at how much money they're spending

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Speaker 1: on R and D versus the United States, it's at

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Speaker 1: least more than half. I think. I think it's double

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Speaker 1: actually um, if not triple. So they're focusing on, you know,

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Speaker 1: what's happening next. This is a near term blip that

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Speaker 1: won't always be with us. We have manufacturing. Now, let's

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Speaker 1: work on innovation. You know, they're already beyond this. Where

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Speaker 1: is the Navarro theme in the White House? I mean,

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Speaker 1: if you you beautifully frame out the dynamics of China

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Speaker 1: versus US, and we've had the reports of sub six

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Speaker 1: percent GDP, etcetera, how does Dr Navarro fold into this

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00:23:41,480 --> 00:23:45,440
Speaker 1: and influencing a president who has his own policy, his

430
00:23:45,600 --> 00:23:49,600
Speaker 1: discrete policy and trade. You know, that's an interesting question,

431
00:23:49,680 --> 00:23:51,719
Speaker 1: and I really wish there was less of a focus

432
00:23:51,800 --> 00:23:54,960
Speaker 1: on Peter Navarro as this sort of outlier in the administration.

433
00:23:55,400 --> 00:23:59,520
Speaker 1: USCR Lifetiser has created the nuclear bomb of these cairas

434
00:23:59,560 --> 00:24:02,199
Speaker 1: he went through the section three of one investigation for

435
00:24:02,200 --> 00:24:03,919
Speaker 1: a year and a half before he published it. He

436
00:24:03,960 --> 00:24:06,520
Speaker 1: gave us all the tools of this trade um. President

437
00:24:06,560 --> 00:24:09,200
Speaker 1: Trump has very long held that China is an aggressor

438
00:24:09,240 --> 00:24:11,480
Speaker 1: and it's stealing our I p and I think that

439
00:24:11,520 --> 00:24:14,400
Speaker 1: there are folks way downstream from that at the State

440
00:24:14,400 --> 00:24:16,840
Speaker 1: Department at Defense UM and you can see that in

441
00:24:16,880 --> 00:24:19,200
Speaker 1: the scifious work and treasury stuff that they're working on.

442
00:24:19,240 --> 00:24:22,320
Speaker 1: The State Department just last week rolled out a draft

443
00:24:22,520 --> 00:24:25,680
Speaker 1: set of guidance for anyone using anything that has any

444
00:24:25,760 --> 00:24:29,080
Speaker 1: kind of surveillance capabilities, whether intentional or not. If you

445
00:24:29,119 --> 00:24:32,920
Speaker 1: can have an audio or a visual surveillance of any

446
00:24:33,320 --> 00:24:36,920
Speaker 1: American in anything that you're developing, they want to crack

447
00:24:37,000 --> 00:24:39,119
Speaker 1: down on and make sure it doesn't get exported. So

448
00:24:39,160 --> 00:24:41,720
Speaker 1: I think it's a misread to think that this is

449
00:24:41,960 --> 00:24:45,240
Speaker 1: one guy ship John wants to jump in here. But

450
00:24:45,240 --> 00:24:47,720
Speaker 1: to be clear, here, you're saying Mr Leightheiser and Dr

451
00:24:47,800 --> 00:24:52,520
Speaker 1: Navir are much closer together than we think. Yes, absolutely,

452
00:24:52,520 --> 00:24:54,520
Speaker 1: and a whole bunch of other folks at the administration.

453
00:24:54,640 --> 00:24:57,280
Speaker 1: I mean you can't. You can't say that only one

454
00:24:57,320 --> 00:24:59,920
Speaker 1: guy believes this is true if the other guy is

455
00:25:00,000 --> 00:25:02,840
Speaker 1: the one who's creating the legal framework for putting the

456
00:25:02,880 --> 00:25:06,280
Speaker 1: tires on too, to substantiate the claim that you know

457
00:25:06,359 --> 00:25:08,600
Speaker 1: Mr Navarro is making, and to some degree, that very

458
00:25:08,640 --> 00:25:11,480
Speaker 1: same mistake was made last week when John Bolton left

459
00:25:11,480 --> 00:25:13,680
Speaker 1: the White House and many people assumed that maybe we'd

460
00:25:13,680 --> 00:25:16,600
Speaker 1: have a change of direction with Iran, and then you

461
00:25:16,640 --> 00:25:19,639
Speaker 1: saw how quickly Secretary Pompeio was to tweet over the

462
00:25:19,640 --> 00:25:22,919
Speaker 1: weekend and blame the Iranians for what happened. Henrietta, what

463
00:25:23,000 --> 00:25:25,439
Speaker 1: is your view on what happens next, just with regards

464
00:25:25,440 --> 00:25:27,639
Speaker 1: to Iran going into the UN General Assembly over the

465
00:25:27,640 --> 00:25:30,960
Speaker 1: next week. UM, well, there's definitely a lot of data

466
00:25:31,000 --> 00:25:34,240
Speaker 1: gathering going on right now. I assume that you know,

467
00:25:34,320 --> 00:25:36,520
Speaker 1: the Big eight on Capitol Hell have been briefed. They'll

468
00:25:36,560 --> 00:25:39,480
Speaker 1: be Armed Services and for an affairs briefings. UM. Saudi

469
00:25:39,520 --> 00:25:41,760
Speaker 1: Arabia will have to clarify exactly how much has been

470
00:25:41,840 --> 00:25:45,480
Speaker 1: clamped down on UM. The Iranian meeting seems pretty clear

471
00:25:45,520 --> 00:25:47,440
Speaker 1: from Iran side anyway is not going to happen with

472
00:25:47,520 --> 00:25:49,919
Speaker 1: President Trump. So I guess we sort of have to

473
00:25:49,920 --> 00:25:52,600
Speaker 1: take his word for that at the moment. But a week,

474
00:25:52,680 --> 00:25:54,680
Speaker 1: as you all know in d C, is a very

475
00:25:54,720 --> 00:25:56,280
Speaker 1: long time and they don't really even get to work

476
00:25:56,280 --> 00:25:58,560
Speaker 1: till tomorrow. So I expect it to be quite a

477
00:25:58,560 --> 00:26:00,920
Speaker 1: few changes. But I am what sink closely to see

478
00:26:00,920 --> 00:26:05,080
Speaker 1: how China and Iran interact, whether China UM has any

479
00:26:05,160 --> 00:26:08,600
Speaker 1: kind of data points about oil shipments from Iran, UM,

480
00:26:08,920 --> 00:26:12,400
Speaker 1: whether the United States is being interested in pursuing secondary sanctions.

481
00:26:12,760 --> 00:26:16,560
Speaker 1: I think there's a lot of potential. I'm not necessarily

482
00:26:16,560 --> 00:26:19,640
Speaker 1: guarantee a potential for the Iranian situation to believe into

483
00:26:19,640 --> 00:26:21,639
Speaker 1: the China talks. Well, Henry I Sai, let's talk about that.

484
00:26:21,680 --> 00:26:25,720
Speaker 1: Just how do these two very different situations crossover. Well,

485
00:26:25,800 --> 00:26:29,520
Speaker 1: because China has had, along with Russia and Iran, a

486
00:26:29,640 --> 00:26:32,720
Speaker 1: much closer working relationship in the United States would like,

487
00:26:33,280 --> 00:26:36,800
Speaker 1: and so when we talk with counsel and say, you know,

488
00:26:37,080 --> 00:26:39,360
Speaker 1: what are the issues we have with China. Of course

489
00:26:39,400 --> 00:26:41,959
Speaker 1: we can go through IP enforced tech transfer and all that,

490
00:26:42,000 --> 00:26:46,080
Speaker 1: but there's also the global presence component about whether or

491
00:26:46,080 --> 00:26:48,959
Speaker 1: not the American sanctions are really working to the greatest

492
00:26:48,960 --> 00:26:51,920
Speaker 1: extent possible, or whether some of the nation are trying

493
00:26:51,960 --> 00:26:55,600
Speaker 1: to interact with them. So it's it's not a direct link,

494
00:26:55,640 --> 00:26:57,920
Speaker 1: but it it's a mistake to think that the US

495
00:26:58,000 --> 00:27:02,080
Speaker 1: China tensions are only about UM many functuring. There about

496
00:27:02,119 --> 00:27:05,480
Speaker 1: a whole bunch of humanitarian components as well, of which

497
00:27:05,480 --> 00:27:08,560
Speaker 1: this could ultimately be one, and hearing about secondary sanctions

498
00:27:08,600 --> 00:27:10,760
Speaker 1: comes up every once in a while with staff. Henry

499
00:27:10,800 --> 00:27:12,639
Speaker 1: had one final question. This has been great. I just

500
00:27:12,680 --> 00:27:16,159
Speaker 1: tweeted out and this has been wonderful, Henria Treys. Is

501
00:27:16,240 --> 00:27:20,040
Speaker 1: Congress locked and loaded? I mean the president is locked

502
00:27:20,080 --> 00:27:24,640
Speaker 1: and loaded. Is Congress locked and loaded? You know, that's

503
00:27:24,640 --> 00:27:27,040
Speaker 1: an interesting question kind of mine reached out last night

504
00:27:27,040 --> 00:27:28,360
Speaker 1: and they were saying, you know, what does this mean

505
00:27:28,400 --> 00:27:30,760
Speaker 1: for foreign arms sales? And we've seen that the Trump

506
00:27:30,800 --> 00:27:35,760
Speaker 1: administration Yes, thank you Cone. Yeah, so we've seen that

507
00:27:35,800 --> 00:27:39,440
Speaker 1: the Trump administration has specifically been really excited to talk

508
00:27:39,480 --> 00:27:42,040
Speaker 1: about arms styles, as we saw with Saudi Arabia just

509
00:27:42,080 --> 00:27:44,000
Speaker 1: the last few months. Who the president can put a

510
00:27:44,000 --> 00:27:45,600
Speaker 1: price tag on it, He can say, you know, we're

511
00:27:45,640 --> 00:27:48,280
Speaker 1: reducing the trade deficit or whatever back of economic indicat

512
00:27:48,560 --> 00:27:52,359
Speaker 1: to look at UM and senators have been very dismissive

513
00:27:52,400 --> 00:27:55,240
Speaker 1: of that. And I think that this is a situation

514
00:27:55,560 --> 00:27:59,000
Speaker 1: that is definitely short of locked and loaded, but could

515
00:27:59,080 --> 00:28:02,720
Speaker 1: be an important Vinceir, particularly if there's sustained disruptions, and

516
00:28:02,760 --> 00:28:05,159
Speaker 1: Saudi Arabia says, Yo, this is really bad. We have

517
00:28:05,160 --> 00:28:07,320
Speaker 1: a real problem. It's going to take us months to

518
00:28:07,320 --> 00:28:10,320
Speaker 1: get this supply back online. Um, that could be a

519
00:28:10,400 --> 00:28:12,840
Speaker 1: game changer. This is big enough to create a locked

520
00:28:12,840 --> 00:28:15,000
Speaker 1: and loaded scenario, but that does not exist at this time.

521
00:28:15,800 --> 00:28:17,600
Speaker 1: N Thank you so much, Hender, And the tray is

522
00:28:17,640 --> 00:28:34,000
Speaker 1: just brilliant there in China currencies. You get a sense

523
00:28:34,040 --> 00:28:37,080
Speaker 1: of kind of what's going on in the world of currencies.

524
00:28:37,080 --> 00:28:41,520
Speaker 1: Who welcome Mark Chandler. Bonobob Burn, Global Foreks, Chief market

525
00:28:41,560 --> 00:28:45,440
Speaker 1: strategist joins us here in our Bloomberg Interactive Broker studio. Mark,

526
00:28:45,480 --> 00:28:47,640
Speaker 1: thanks so much for being here. So again, you wake

527
00:28:47,720 --> 00:28:50,120
Speaker 1: up this morning, you come in on a Monday morning,

528
00:28:50,120 --> 00:28:53,720
Speaker 1: and you see oil of double digits across the world

529
00:28:53,720 --> 00:28:56,160
Speaker 1: in terms of w T I and Brent, how does

530
00:28:56,200 --> 00:28:58,640
Speaker 1: that impact kind of how you go about your week

531
00:28:58,720 --> 00:29:01,480
Speaker 1: here thinking about currency and talking to your clients and

532
00:29:01,640 --> 00:29:03,640
Speaker 1: kind of how to be positioned. Sure, you know in

533
00:29:03,680 --> 00:29:06,200
Speaker 1: the fun exchange market, are week really begins Sunday afternoons,

534
00:29:06,640 --> 00:29:09,360
Speaker 1: so we saw what was happening as the Asian markets

535
00:29:09,400 --> 00:29:11,440
Speaker 1: opened up, and I think that's one of the takeaways

536
00:29:11,520 --> 00:29:15,320
Speaker 1: is that typically we get a very exaggerated response reaction

537
00:29:15,360 --> 00:29:18,640
Speaker 1: in Asia where we still have relatively thin markets. And

538
00:29:18,640 --> 00:29:20,080
Speaker 1: I think that's when we saw that oil make the

539
00:29:20,120 --> 00:29:22,760
Speaker 1: extreme and where dollar yen made an extreme, and I

540
00:29:22,760 --> 00:29:25,120
Speaker 1: think the initial knee jerk reaction the FX market was

541
00:29:25,160 --> 00:29:28,040
Speaker 1: to excuse me, was to buy the end as sort

542
00:29:28,040 --> 00:29:31,400
Speaker 1: of a safe haven play and buy the currencies that

543
00:29:31,840 --> 00:29:34,200
Speaker 1: are often seen as sensitive to oil, so that would

544
00:29:34,240 --> 00:29:38,240
Speaker 1: be the Canadian dollar, Norway as well as the Russian ruble.

545
00:29:38,400 --> 00:29:40,920
Speaker 1: And that's what we've basically seen are the markets telling

546
00:29:40,960 --> 00:29:42,960
Speaker 1: you when you when you look at those currencies that

547
00:29:43,040 --> 00:29:45,640
Speaker 1: this might be a short term issue or there might

548
00:29:45,680 --> 00:29:47,560
Speaker 1: be a little bit more going on here in terms

549
00:29:47,600 --> 00:29:50,560
Speaker 1: of supply of oil. Yes, in the long run. You

550
00:29:50,560 --> 00:29:52,240
Speaker 1: know what I really look at currencies. I tend to

551
00:29:52,240 --> 00:29:54,800
Speaker 1: focus much more on the capital flows than the flow

552
00:29:54,840 --> 00:29:56,720
Speaker 1: of goods, and oil is just to flow with the goods. Okay,

553
00:29:56,800 --> 00:29:58,520
Speaker 1: this is what I really like about the FX market.

554
00:29:58,600 --> 00:30:01,640
Speaker 1: Five trillion dollars a day and over that means by Thursday,

555
00:30:01,680 --> 00:30:04,000
Speaker 1: in a week four days, we need enough, we see

556
00:30:04,080 --> 00:30:07,000
Speaker 1: enough turnover to cover world trade for a year. So

557
00:30:07,040 --> 00:30:10,760
Speaker 1: typically I'll focus on monetary policy and those kind of

558
00:30:10,760 --> 00:30:14,520
Speaker 1: things that attract capital rather than the goods trade. You're

559
00:30:16,440 --> 00:30:19,320
Speaker 1: I'm new. The blue button is over there, the anthony

560
00:30:19,400 --> 00:30:22,320
Speaker 1: from Sparta the same time, trying to get to it

561
00:30:22,600 --> 00:30:24,880
Speaker 1: before you open said mouth. Had to take the cork

562
00:30:24,920 --> 00:30:30,280
Speaker 1: out of my mouth. Your wonderful book Political Economy of Tomorrow,

563
00:30:30,640 --> 00:30:34,440
Speaker 1: about the astrology of all this one of the foundation

564
00:30:34,840 --> 00:30:39,920
Speaker 1: astronomical realities. It's like Coperni Kuss is the dollars linked

565
00:30:39,960 --> 00:30:43,440
Speaker 1: to oil? Really? Is that still true? Yeah? So I

566
00:30:43,560 --> 00:30:45,840
Speaker 1: never was a will believe, big believe in this petro

567
00:30:45,960 --> 00:30:48,440
Speaker 1: dollar type of scenario. I say, yeah, maybe in the

568
00:30:48,520 --> 00:30:51,240
Speaker 1: nineteen seventies it might have been an important part. But

569
00:30:51,320 --> 00:30:54,240
Speaker 1: the thing that keeps a dollar as the key asset, key,

570
00:30:54,280 --> 00:30:58,440
Speaker 1: reserve currency, key invoicing currency is the depth and beath

571
00:30:58,520 --> 00:31:02,400
Speaker 1: of our treasury market and that bigger, deeper, more transparent

572
00:31:02,440 --> 00:31:04,120
Speaker 1: than any other bond market. And that's what I think

573
00:31:04,120 --> 00:31:07,240
Speaker 1: really is behind the dollar more than oil. Is there

574
00:31:07,240 --> 00:31:10,560
Speaker 1: a dollar shortage out there? Explained to our audience when

575
00:31:10,600 --> 00:31:14,920
Speaker 1: they see headlines in the blogosphere we're running out of dollars.

576
00:31:15,000 --> 00:31:18,320
Speaker 1: Dollars are short abroad will translate that. Yeah, So this

577
00:31:18,400 --> 00:31:20,920
Speaker 1: is partly original sin in the in the in the markets,

578
00:31:20,920 --> 00:31:24,400
Speaker 1: and that has when countries borrow currencies that aren't their own,

579
00:31:24,440 --> 00:31:26,640
Speaker 1: they don't have the printing press for so, whether it's

580
00:31:26,760 --> 00:31:30,680
Speaker 1: Chinese companies borrowing dollars, emerging markets borrowing dollars because it's

581
00:31:30,760 --> 00:31:34,480
Speaker 1: cheaper to borrow dollars often than borrow their own currency.

582
00:31:34,520 --> 00:31:36,960
Speaker 1: That because of all this massive borrowing of dollars in

583
00:31:37,000 --> 00:31:39,479
Speaker 1: the last several years, people think that the shortage, that is,

584
00:31:40,080 --> 00:31:42,640
Speaker 1: those who borrow dollars have to pay them back, and

585
00:31:42,720 --> 00:31:44,680
Speaker 1: so they think that there's a big shortage of dollars

586
00:31:44,720 --> 00:31:46,520
Speaker 1: because these people have to pay them back. But I

587
00:31:46,560 --> 00:31:48,280
Speaker 1: look at is some of the corporate some of the

588
00:31:48,320 --> 00:31:50,400
Speaker 1: corporates as well as some of the country balance sheets.

589
00:31:50,560 --> 00:31:52,800
Speaker 1: A country like Saudi Arabia, for example, as the issue

590
00:31:52,840 --> 00:31:56,640
Speaker 1: dollar bonds, well they have dollar receivables. Same thing with Brazil,

591
00:31:56,800 --> 00:31:59,200
Speaker 1: same thing with Mexico. So I'd be looking when I

592
00:31:59,400 --> 00:32:01,720
Speaker 1: think about this all a shortage issue, I'm gonna I'm

593
00:32:01,720 --> 00:32:04,000
Speaker 1: gonna drill down and look at where is the real imbalanced.

594
00:32:04,080 --> 00:32:07,080
Speaker 1: Who's got the natural dollars to pay back these loans.

595
00:32:07,280 --> 00:32:09,600
Speaker 1: We're looking at the d X. Why the dollar in

596
00:32:09,600 --> 00:32:12,400
Speaker 1: next at nine point five to today, up another third

597
00:32:12,440 --> 00:32:14,400
Speaker 1: of one percent? Is there a bear case out there

598
00:32:14,400 --> 00:32:17,440
Speaker 1: for the U s Dollar anywhere? Yeah, So I'm really

599
00:32:17,440 --> 00:32:19,120
Speaker 1: in the case in the camp that says that the

600
00:32:19,200 --> 00:32:21,840
Speaker 1: dollar has been in a ten year bull market and

601
00:32:21,840 --> 00:32:24,320
Speaker 1: that bull market is nearly over and maybe make a

602
00:32:24,320 --> 00:32:27,160
Speaker 1: marginal new high. Maybe you don't, but that it's the

603
00:32:27,200 --> 00:32:29,320
Speaker 1: process of a lower and extreme of the markets. Tends

604
00:32:29,320 --> 00:32:31,560
Speaker 1: to be a process, and I think that process is

605
00:32:31,600 --> 00:32:33,920
Speaker 1: already underweigh in the US just thinking about's going to

606
00:32:33,960 --> 00:32:36,360
Speaker 1: happen later this week. The Federal Deserve is most likely

607
00:32:36,360 --> 00:32:39,160
Speaker 1: going to cut twenty five basis points. The ECB cut

608
00:32:39,200 --> 00:32:42,160
Speaker 1: ten basis points last week and maybe cut ten basis

609
00:32:42,200 --> 00:32:44,480
Speaker 1: points before the end of the year. Meanwhile, we'll probably

610
00:32:44,480 --> 00:32:46,080
Speaker 1: cut at least fifty before the end of the year

611
00:32:46,120 --> 00:32:48,280
Speaker 1: while they cut twenty. And so I'm looking at interest

612
00:32:48,360 --> 00:32:51,680
Speaker 1: rate differentials moving against the US over time, and this

613
00:32:51,720 --> 00:32:55,400
Speaker 1: is really important. This is absolute analysis versus what you know.

614
00:32:55,440 --> 00:32:58,480
Speaker 1: Your acclaimed career Mark Chandler, which is a study of

615
00:32:58,640 --> 00:33:02,720
Speaker 1: relative analysis. This what is the relative shock of this

616
00:33:02,840 --> 00:33:07,320
Speaker 1: oil tobacco for Saudi Arabia versus the shock that there

617
00:33:07,360 --> 00:33:10,080
Speaker 1: would have been an OPEC uh in OPEC one or

618
00:33:10,120 --> 00:33:15,240
Speaker 1: OPAC or on from there. I mean, it's a different

619
00:33:15,440 --> 00:33:17,959
Speaker 1: calculus now, isn't it. I agree fully, And I think

620
00:33:18,000 --> 00:33:20,040
Speaker 1: that one of the biggest changes in the last several

621
00:33:20,120 --> 00:33:23,480
Speaker 1: years has been the US has emerged as a premier

622
00:33:23,920 --> 00:33:26,719
Speaker 1: export of oil. And I think that was in June

623
00:33:27,040 --> 00:33:29,640
Speaker 1: that the U s past Saudi Arabia and their exports.

624
00:33:29,800 --> 00:33:33,560
Speaker 1: Saudia's caught up in in July August, but we're gonna

625
00:33:33,760 --> 00:33:35,200
Speaker 1: let us shore pass him again. I think that the

626
00:33:35,320 --> 00:33:38,160
Speaker 1: US is not energy sufficient. We just we still are

627
00:33:38,160 --> 00:33:41,200
Speaker 1: importing about six million barrels a day. But this hasn't

628
00:33:41,200 --> 00:33:43,920
Speaker 1: been a big change in the rule of the dollar,

629
00:33:44,040 --> 00:33:46,120
Speaker 1: the rule of the oil markets in general. We gotta

630
00:33:46,200 --> 00:33:48,719
Speaker 1: leave their mark. Chandler, thank you so much for bannockburn

631
00:33:49,160 --> 00:33:53,600
Speaker 1: uh this morning. Greatly. Thanks for listening to the Bloomberg

632
00:33:53,640 --> 00:33:59,600
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, Suncloud,

633
00:34:00,240 --> 00:34:04,520
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

634
00:34:04,600 --> 00:34:08,480
Speaker 1: Keane Before the podcast. You can always catch us worldwide.

635
00:34:08,920 --> 00:34:10,000
Speaker 1: I'm Bloomberg Radio