Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. Your
Speaker 1: top story, quite clearly what happened with Sarly Arabia through
Speaker 1: the weekend. Sari A Ramco losing about five point seven
Speaker 1: million barrels per day of output after ten unmanned error
Speaker 1: vehicles struck the world's biggest crude processing facility as well
Speaker 1: as the Kingdom's second largest oil field. I'm pleased to
Speaker 1: say that joining us on the phone, Harry Chill and
Speaker 1: Garian joined us now BMP parabas head of Commodity market Strategy.
Speaker 1: Great to have you with us, Harry. Let me begin
Speaker 1: with the first and obvious question. How long will it
Speaker 1: take a Ramco to bring disrupted production back on line?
Speaker 1: It's a consequence how long can Saudi tap inventories without
Speaker 1: disrupting flows to customers. I think that's a really difficult question.
Speaker 1: Right now. We don't have yet a status report in
Speaker 1: terms of damage, in particular at the Upcake refinery. As
Speaker 1: you know, Aramco announced on Sunday that it should produce
Speaker 1: such a report within forty eight hours, So I guess
Speaker 1: we're gonna have to wait and see what the level
Speaker 1: of damage is. UH. Certainly Saudi Arabia, in terms of
Speaker 1: its commitments to its customers, will be able to keep
Speaker 1: supplying the market and as storage at its main all
Speaker 1: terminals like RUSTLANDEUF has pre position oil all across the world,
Speaker 1: from Europe to Asia, UH to the to the US market.
Speaker 1: So I think that they could easily go a month
Speaker 1: in terms of meeting their commitments. But really the key
Speaker 1: issue is the level of damage and Upcake because that
Speaker 1: processing facility is key to making marketable commercial crude for
Speaker 1: export to customers. We'll talk about the geopolitics in just
Speaker 1: a moment, Harry, But the questions about the vulnerability of
Speaker 1: a Ramco's infrastructure, I don't think it going anywhere, are they? Well,
Speaker 1: this recent attack really is an escalation in terms of
Speaker 1: the ability to reach Saudi oil infrastructure by in theory
Speaker 1: Houti rebels backed by Iran UH to tend strong drone attack,
Speaker 1: which obviously has not yet happened before the previous attacks
Speaker 1: by drones are in in comparison or relatively low level
Speaker 1: in terms of importance. So the question really here is
Speaker 1: whether or not these Houti rebels have the means to
Speaker 1: replicate such attacks in the future. So, yes, we have
Speaker 1: an escalation in terms of geopolitical risk on oil supply,
Speaker 1: and the market is going to have to reprice that
Speaker 1: that risk premium. So Harry, let's talk about the geopolitics
Speaker 1: over the weekend. Secretary Pompey are very quick on Twitter
Speaker 1: to come out and say the Tayran is behind nearly
Speaker 1: a hundred attacks on Saudi Arabia, while Rahanigans a reef
Speaker 1: pretend to engage in diplomacy. Amid all the calls for
Speaker 1: the escalation, Iran is now launched an presidented attack on
Speaker 1: the world energy supply. There is no evidence the attacks
Speaker 1: came from Yemen. The president has been very restraint compared
Speaker 1: to Secretary Pompeio. The presidents saying the following that Saudi
Speaker 1: Arabia's all supply was attacked. There is no reason to
Speaker 1: believe that we know. There is a reason to believe
Speaker 1: that we know. The culprit rather are locked and loaded,
Speaker 1: dependent on verification, but are waiting to hear from the
Speaker 1: Kingdom as to who they believe was the cause of
Speaker 1: this attack and under what terms we would proceed. What
Speaker 1: do you make of the information vacuum over the weekend
Speaker 1: and into the beginning of the week carry well in
Speaker 1: terms of like identifying culprits. Of course, the US was
Speaker 1: prompt to point a finger at Iran, but the President's
Speaker 1: communication has been, as you as you just mentioned, extremely reserved,
Speaker 1: not mentioning any names, because in the end, whatever conclusion
Speaker 1: they're going to reach, you're gonna have to think of
Speaker 1: what would be called a proportionate or measured response to
Speaker 1: the attack that that was committed. So I guess again
Speaker 1: being extremely cautious in terms of warning. And however, you
Speaker 1: you always have this differences in communication, and you've highlighted
Speaker 1: them between the White House being a little bit more
Speaker 1: cautious than the the U S Secretary of State. Now
Speaker 1: in terms of the geo politics. Was really interesting is
Speaker 1: the fact that this attack has really come shortly after
Speaker 1: the dismissal of John Bolton as National Security Advisor, and
Speaker 1: that had lifted I guess some hopes that the US
Speaker 1: may adopt a different strategy towards Iran, and even some
Speaker 1: speculating the President Trump's and Ronnie could meet at the
Speaker 1: UN Generally Assembly UH albeit informally. Of course, the oughts
Speaker 1: of any such meeting now have changed greatly the recent attacks. Harry,
Speaker 1: we are thrilled to start our hour with you with
Speaker 1: b MP prry By. You've been around since with you, Harry,
Speaker 1: you were with John Rockefell or I think in the
Speaker 1: Pennsylvania mountains there a few years back, looking for the
Speaker 1: first barrel oil in Pennsylvania. It's not your well, it's
Speaker 1: not your father's oil crisis. Our dependency on oils less.
Speaker 1: And as Greg Valier brilliantly says in his note this morning,
Speaker 1: the US is basically oil sufficient and with this attack
Speaker 1: China gets hammered. Do you agree with Mr Vllier? Well,
Speaker 1: I would. I would say that the US is not
Speaker 1: necessarily self sufficient, as a large surplus of light oil
Speaker 1: and a lot of its refineries are dependent on a
Speaker 1: heavier quality of oil. So the US is, rather than
Speaker 1: being energy independent, is basically becoming a very large energy exporter,
Speaker 1: so rivaling in production the likes of Saudi and Russia
Speaker 1: and emerging onto its own in terms of UH uh
Speaker 1: AN exporting superpower. Now in terms of implications, of course, Uh,
Speaker 1: Saudi Areba supplies multiple countries, but the share of Saudi
Speaker 1: crude imforce into the US has steadily declined. And yes,
Speaker 1: China and a number of other Asian countries a highly
Speaker 1: dependent on Middle Eastern oil coming through the vital passageway
Speaker 1: of the Strait of hormones. So I tend to say that,
Speaker 1: you know, Uh, in terms of relative impacts, of course
Speaker 1: the sheriff Saudi imports into the US as lesson. But
Speaker 1: and however Asian countries themselves are far more exposed. Yes,
Speaker 1: some people might say we've been quite complacent about the
Speaker 1: geopolitical risk premium that should have been in the all market.
Speaker 1: Some people might still be saying that this morning we've
Speaker 1: had a rather big disruption to crude supplies, and that's
Speaker 1: an understatement, And yet crude is up by what eight
Speaker 1: nine in a grand scheme of things, Harry, I don't
Speaker 1: think that's the move a lot of people expected. Well,
Speaker 1: I think you know, when it when it comes to
Speaker 1: the price reaction, we were going to get that knee
Speaker 1: jerk reaction that you mentioned earlier up on the Asian
Speaker 1: open because there's very little liquidity and number of people
Speaker 1: were positioned to buy into into crude. However, as we
Speaker 1: get more reports, including from the likes of the Wall
Speaker 1: Street Journal, indicating that a third of production could swiftly
Speaker 1: return and that that is possible because production has been
Speaker 1: shut down on a precautionary basis as well. And it
Speaker 1: really just comes back down to what is a damn
Speaker 1: which assessment that up, because if the damage is modest,
Speaker 1: then we should see us for of Saudi supplies. Harry, Great,
Speaker 1: We're all going to go back. Daniel, you'regens surprise here
Speaker 1: to get updated again. Mr Chilling gurry in with b
Speaker 1: MP Perry Bond has just given us a great perspective
Speaker 1: over the years. Chin Is, As we get to our
Speaker 1: esteemed guest, why don't you bring in Michael Dart in
Speaker 1: any number of ways to Twitter. I just want to
Speaker 1: keep everyone up to speed on the news flow. First
Speaker 1: of all, we've got some reporting here at Bloomberg Sandy
Speaker 1: Window said to be less optimistic on speed of the
Speaker 1: output recovery crude with a little bit of a pop
Speaker 1: off the back of that now up ten percent. Just
Speaker 1: that headline. Tom goes to show you that the concern
Speaker 1: is a little bit beyond the speed of output recovery
Speaker 1: and towards the kind of geopolitical risk preming that we
Speaker 1: should now be baking in. But for me, the top
Speaker 1: news overnight, if we did not have these attacks on
Speaker 1: a RAMCO weekend, would be the Chinese Economic Day. Talk
Speaker 1: about that. It was dreadful. Industrial production came in at
Speaker 1: four point full percent. It is the weakest single months
Speaker 1: since to Nazan and two and it really doesn't look
Speaker 1: good at sold. And in early September, Michael Darta Mcamp
Speaker 1: Partners wrote a pristine paragraph that is data acclaim on
Speaker 1: the vixcelient relative rate, is China gonna have a new
Speaker 1: lower terminal rate? Is the United States and the rest
Speaker 1: of the developed world have a new lower terminal rate? Oh? Tom,
Speaker 1: I think there's no doubt about that. Their structural reasons
Speaker 1: that China is slowing down, obviously considering slower and lower
Speaker 1: population growth. And then on top of it, these trade
Speaker 1: shocks are certainly leaving a mark. I mean, you know,
Speaker 1: the trade wars hurting the US, hurting US manufacturing, but
Speaker 1: it's certainly damaged China more. And you can see that
Speaker 1: in the data released today. I mean I mean John
Speaker 1: Joyce Chang last week of Morgan Stanley shocked with four
Speaker 1: and a half sent as their vector their target out there.
Speaker 1: No one believes Joyce Chang premier League. Shang was speaking
Speaker 1: to Russian media of the night, actually said it's going
Speaker 1: to be difficult to hit six percent. Just how difficult
Speaker 1: will it be, Mike to hit six percent? Yeah, I
Speaker 1: mean it's you know, it's a bit of an arbitrary number,
Speaker 1: but with data like what we're seeing today, it certainly
Speaker 1: raises the question. I also look at some of the
Speaker 1: monetary growth trends in China. I mean, if you look
Speaker 1: at them, one in them to growth, these Milton Friedman indicators,
Speaker 1: they've been very, very weak. So maybe we shouldn't be
Speaker 1: completely startled that we're getting some fairly soft macro data
Speaker 1: out of China. The other thing is, you know, you've
Speaker 1: got the dollar levitating this year to you know, to
Speaker 1: President Trump's chagrin, and that tends to to hurt emerging markets.
Speaker 1: It tends to be associated with emerging market equity and
Speaker 1: fixed income under performance and slowing emerging market growth rates.
Speaker 1: And so you know, we have that as part of
Speaker 1: the backdrop as well. All of this coming at a
Speaker 1: time where we've just had a massive back up and
Speaker 1: treachery yields yield last week up more than thirty basis points. Now,
Speaker 1: I'm going to ask you a question I've been asking everybody,
Speaker 1: and everyone wants the answer to this. I wish we
Speaker 1: had a crystal bowl to know what it would be.
Speaker 1: But just how are you framing this right now? A
Speaker 1: correction in the context of a massive move through or
Speaker 1: the beginning of something new. I don't think this is
Speaker 1: the beginning of something new. I think what had happened
Speaker 1: is and especially if you look at that that last
Speaker 1: leg of the drop in the tenure yield from two percent,
Speaker 1: it was really associated with the trade war taking a sudden,
Speaker 1: an unexpected turn for the worse. And so I think
Speaker 1: a combination of things have been lifting yields. One is
Speaker 1: that there maybe it's unfounded, but there is now a
Speaker 1: renewed sense of optimism that the trade war may ease,
Speaker 1: that President Trump maybe moving towards some kind of a deal,
Speaker 1: even if it's a minor deal. There were also fears
Speaker 1: of a hard brexit. Those fears have receded to some degree,
Speaker 1: uh in the macro data in the US while it's
Speaker 1: certainly not super robust, we're not falling off a cliff.
Speaker 1: And you saw that with retail sales this past week.
Speaker 1: Everybody follows you, Michael Dard, going, great, why are we
Speaker 1: ner record highs on equities? I mean, how do you
Speaker 1: just flip the reciprocal on the new terminal value when
Speaker 1: it gives you higher equity valuations? I don't buy it.
Speaker 1: What's your conviction in the stock market? Well, I would,
Speaker 1: you know, take a more cautious stance on on equities here,
Speaker 1: just given the fact that we're pretty close to the
Speaker 1: highs of the year, and I still think there are
Speaker 1: business cycle risks out there. So even with this reversal
Speaker 1: and yields that John mentioned, you still have the treasury
Speaker 1: yield curve inverted. This will be the seventeen consecutive week.
Speaker 1: You know, if if today's action continues throughout the balance
Speaker 1: of the week, where the ten year yield has been
Speaker 1: you know, has has been inverted visa VI the three
Speaker 1: month T bill. So ten year yields being below tea
Speaker 1: bills and a sustained fashion you know, has preceded every
Speaker 1: recession going back to the ninet sixties. And so I
Speaker 1: do think there's certainly call for some caution here on
Speaker 1: risk assets. Would you make the argument, Mike, just to
Speaker 1: round things up, that maybe we got too pessimistic, that
Speaker 1: if you look at the global surprise indicators finally we
Speaker 1: turned positive in the last couple of weeks, that the
Speaker 1: estimates the forecast just got too pessimistic versus the reality
Speaker 1: of the actual day that was coming through. Yeah, I
Speaker 1: think that's that's a totally reasonable argument. Um. I mentioned
Speaker 1: that big fall off from the two percent level and
Speaker 1: the tenure treasury yield just seem to be associated with
Speaker 1: a lot of pessimism centered around the trade war and
Speaker 1: in some of these other um global factors that enforces
Speaker 1: that have been creating a falling confidence. So if those reverse,
Speaker 1: you'd expect the bond yields to to reverse. The question
Speaker 1: is do we keep running up from here and yields?
Speaker 1: And I'd be a little more skeptical cautious on that view.
Speaker 1: Michael Darted, thank you so much, greatly appreciated m came partners.
Speaker 1: Too much news, slow, too little time to talk. We'll
Speaker 1: get a a longer discussion. EIMR a can Oxford Institute
Speaker 1: for Energy. It is a spectacular twenty pages of dense, dense,
Speaker 1: dense microeconomics on how we come up with an oil
Speaker 1: price That leads us to Ted Alden. Edward Alden's Failure
Speaker 1: to Adjust How Americans Got Left Behind was a superb
Speaker 1: book a number of years ago and still highly valuable
Speaker 1: to anybody interested in our trade world. And Ted Alden
Speaker 1: joins us from our Washington studios right now, Ted, I
Speaker 1: want to rip up the script here and talk not
Speaker 1: about the gloom of our failure to adjust. But we
Speaker 1: adjusted to oil. We had oil shock one oil shock too,
Speaker 1: and somehow America came out of this more independent on
Speaker 1: hydrocarbon's how do we do it well? I may not
Speaker 1: be the best guy to ask that on the energy front,
Speaker 1: but we got right now. You not not fair enough,
Speaker 1: fair enough. But I think there is a general point
Speaker 1: which is one of the great strengths of the American
Speaker 1: economy over many decades now, is that it is highly adaptable.
Speaker 1: I mean, we adapted to the all shocks of the seventies.
Speaker 1: I mean I was pretty young then, but I remember
Speaker 1: quite well. I remember the gas lineups, and it was
Speaker 1: a difficult transition, but we made it. We adjusted to
Speaker 1: the Japanese competition of the nineteen eighties and the nineteen nineties.
Speaker 1: We are a highly flexible, adaptable economy, but it but
Speaker 1: it takes effort. It actually takes both business and government
Speaker 1: and and some of the initiatives. I think we're gonna
Speaker 1: need to adapt to this generation of shocks we're not
Speaker 1: seeing come out, partly because of the dysfunction of our
Speaker 1: political system. Right what's been amazing is the productivity story
Speaker 1: as well for US crewed it's been a technology story
Speaker 1: as much as technology been absolutely incredible tet and now
Speaker 1: there's a lot of people trying to figure out every
Speaker 1: time we have some kind of oil shock one way
Speaker 1: or the other, trying to figure out on net whether
Speaker 1: higher or lower oil prices is what's best for the
Speaker 1: American economy. How on earth do you make that calculation? Well,
Speaker 1: I mean, I think if you look at the growth numbers,
Speaker 1: it's it's pretty clear that higher oil prices are harmful
Speaker 1: to the US economy. Pretauld be such a large oil
Speaker 1: producer now that on net it's a good thing. But
Speaker 1: your point is it's not as straightforward to calculation as
Speaker 1: it was to say in the seventies and eighties. Then
Speaker 1: you know, Ohio, oil prices across the board were bad. Now,
Speaker 1: because we're such a large producer, it hurts the US
Speaker 1: economy less than it does other competitor economy, So it's
Speaker 1: a more difficult calculation, absolutely, no question. So what does
Speaker 1: it mean for policy going forward? Elizabeth Warren sent it
Speaker 1: to Warren coming out quite recently on her Twitter accounts
Speaker 1: saying she would band fracking everywhere's head, I mean, on
Speaker 1: the service of things. It's a rather large statement, and
Speaker 1: no one has any idea whether she can actually do that.
Speaker 1: But what do you make of those kind of statements
Speaker 1: from the Democrats. Well, it's I mean, electorally, that's a
Speaker 1: challenging one, right, mean, fracking has helped a lot of economies,
Speaker 1: local economies around the country. There are obviously significant environmental issues. Again,
Speaker 1: I think that the history tends to suggest that those
Speaker 1: can be managed in a way that you don't have
Speaker 1: a complete trade off between growth and environmental protection. I worry,
Speaker 1: and you know, again, as Tom and I was getting
Speaker 1: a little out of my areas here. But but you know,
Speaker 1: one of the things that happened in the seventies with
Speaker 1: the creation of ep A and other things, was that
Speaker 1: that you had a set of regulations go into place
Speaker 1: that allowed growth to proceed, but also focused on environmental
Speaker 1: protection where it really matters. I worry about the dismantling
Speaker 1: of those things going on in the current administration. I
Speaker 1: don't think it's in either or. I think you can
Speaker 1: protect the environment and do the things that are necessary
Speaker 1: for strong growth. We welcome all of you on Bloomberg Surveillance.
Speaker 1: Edward Alden with US. He's with the Council on Foreign Relations.
Speaker 1: His book Failure to Adjust. John Farrell and I are
Speaker 1: adjusting to more data checks, futures of negative eleven oil
Speaker 1: seventy two ish, the high was seven right down to
Speaker 1: sixty eight dollars a barrel, and Brent and then John,
Speaker 1: we got down here sixty five is should we've come
Speaker 1: back a little bit last our a little bit of
Speaker 1: a lift here off the President with a couple of
Speaker 1: tweets that I'd like to bring to you all just briefly,
Speaker 1: right now, right here, right now. In China shrank most
Speaker 1: in three years due to China's big evaluation of their
Speaker 1: currency coupled with monetary stimulus. Federal Reserve not watching Will
Speaker 1: the Fed ever get into the game. The dollars strongest ever,
Speaker 1: really bad for export to no inflation, highest interest rates
Speaker 1: the United States because of the FED is paying a
Speaker 1: much higher rate than other competing countries. They can't believe
Speaker 1: how lucky they are that j Palal and the Fed
Speaker 1: don't have a clue. And now on top of it all,
Speaker 1: they all here big interest rate drop stimulus is he
Speaker 1: listened to us because he knows we have old us.
Speaker 1: So Ted just talked to me about this because many
Speaker 1: people find it hard to reconcile the call for stimulus
Speaker 1: with the projection of the idea from this administration that
Speaker 1: this economy is totally fine and rock solid. Well, I mean,
Speaker 1: has there ever been of president who didn't want lower
Speaker 1: interest rates going into his re election year? So most
Speaker 1: of them have not been quite so public about bashing
Speaker 1: the Federal reserve. But but this is something that presidents
Speaker 1: always want. I mean that the economy can never be
Speaker 1: too strong going into an election year. Trump's clearly not
Speaker 1: worried about overheating, and to be fair, there aren't a
Speaker 1: lot of signs of overheating. Problem is the FED doesn't
Speaker 1: have a lot more ammunition, right, I mean it could
Speaker 1: a little faster, but but it's not a whole lot
Speaker 1: it can do to further boost the economy going into twenties.
Speaker 1: It's micro economics Monday. We've been doing that with oil
Speaker 1: and and it's been a joy. Let's do it with
Speaker 1: ted Alden now. And trade. Part of this is the
Speaker 1: substitution effect. If we, as a president clearly in this tweet,
Speaker 1: suggests it's US and China, ted Alden is gonna say, no,
Speaker 1: it's not, and that there are indirect and direct leakages
Speaker 1: where the trade slips out of China to a dynamic
Speaker 1: with other countries. How evident, how pronounced is that subtitution
Speaker 1: affect Well, you're seeing it certainly in in Asia, particularly
Speaker 1: with the growth of exports from Vietnam. And you're seeing
Speaker 1: this administration now target Vietnam and say, oh, you know,
Speaker 1: Vietnam's trade surplus with the United States is soaring. That's
Speaker 1: the problem we need to do something about. So so
Speaker 1: that's been the most significant kind of leakage we've seen already,
Speaker 1: but it will certainly grow if the if the trade
Speaker 1: war continues. In a lot of ways, we're still in
Speaker 1: the fairly early stages here because what's at stake is
Speaker 1: long term investment decisions by companies. Are they confident that
Speaker 1: they can continue to export from China to the United States.
Speaker 1: If the answer is yes, they probably stay put. If not,
Speaker 1: they have to think about either relocating existing investments or
Speaker 1: where they make future investments. So so there's a very
Speaker 1: long tail on this. Yeah, it's gonna be interesting. I
Speaker 1: mean within that long tail and just simple immediate discussions
Speaker 1: of October. What's on Ted Alden's date calendar for October
Speaker 1: to indicate how this trade war unravels or how this
Speaker 1: trade war moves forward. Well, you know, always hesitate to
Speaker 1: say that, you know, the next round of negotiations is
Speaker 1: the critical one, but I think the one coming up
Speaker 1: between the United States and China in October is critical.
Speaker 1: The last couple of efforts to restart the talks since
Speaker 1: they broke down and may have been catastrophic failures that
Speaker 1: have resulted in further escalation. I think if there's going
Speaker 1: to be any sort of reasonably durable truce, it's going
Speaker 1: to have to happen at this October meeting and then
Speaker 1: maybe be cemented when Trump and Chinese President juja Paying
Speaker 1: meet at at a peck in Chile in November. So
Speaker 1: I think I'm clearly the markets are gonna be watching
Speaker 1: this meeting very closely. They are hopeful now because of
Speaker 1: the gestures on each side, the Chinese deciding not to
Speaker 1: further raise tariffs on agriculture imports, the Trump delaying the
Speaker 1: next round of US figure so it's a big meeting. Clearly,
Speaker 1: it's slipping under the radar some really weak Chinese economic data,
Speaker 1: industrial output rising just four point four percent from a
Speaker 1: year earlier in August. A lot of people might say
Speaker 1: that sounds good for the rest of the world. It
Speaker 1: might be, but for China it's not. It's the lowest
Speaker 1: for a single month since two thousand and two. Retail
Speaker 1: sales also coming in below expectations. We've got a fantastic
Speaker 1: guest to talk to us about it, Henry had A Trays,
Speaker 1: Vada Pander's director of Economic policy Research. Henry had to
Speaker 1: just your early reaction to that economic data from China overnight.
Speaker 1: Thanks for having me. Yeah, I mean, as you mentioned,
Speaker 1: it's the worst number since two thousand of two, So
Speaker 1: obviously China is facing some pressure, and I think the
Speaker 1: Trump administration is watching that very closely. As we've discussed earlier. Um,
Speaker 1: you know, the administration feels very confident that this trade
Speaker 1: war is having a much more profound impact on China's economy,
Speaker 1: and the President she can't sustain this the way that
Speaker 1: President Trump. Do you you to that assessment? Do you
Speaker 1: agree with that? I do not, And I more importantly
Speaker 1: don't see any of the indicators coming out of China
Speaker 1: in terms of the verbiage that either President She or
Speaker 1: any of his folks downstream are using against the United States.
Speaker 1: They're saying, look, this is what happens when foreign aggressors
Speaker 1: come in. You be the communist party to leave the country.
Speaker 1: We can fix it. We're the ones who will stand
Speaker 1: up to the United States. And the economic nationalism that
Speaker 1: you see, um you know, most clearly identified in the
Speaker 1: Japan versus South Korea fights is something that I think
Speaker 1: they're stoking. Hey, let's get nationalistic support. Chinese companies don't
Speaker 1: buy a Ford, buy a Chinese manufacturing book car. And
Speaker 1: I think that's the direction they're which is not what
Speaker 1: the Trump administration is trying to telegraph the folks here. So, Henrietta,
Speaker 1: when you look at the economy just away from the politics,
Speaker 1: what on depends a more constructive view of the Chinese
Speaker 1: economy right now. I think with the Chinese economy, you
Speaker 1: have one thing that's most important, and that's longevity. And
Speaker 1: that is a sense that they don't need to respond to,
Speaker 1: you know, the Iowa caucuses or a November two thousand
Speaker 1: twenty elections. They can plan for. They can plan for.
Speaker 1: And if you look at how much money they're spending
Speaker 1: on R and D versus the United States, it's at
Speaker 1: least more than half. I think. I think it's double
Speaker 1: actually um, if not triple. So they're focusing on, you know,
Speaker 1: what's happening next. This is a near term blip that
Speaker 1: won't always be with us. We have manufacturing. Now, let's
Speaker 1: work on innovation. You know, they're already beyond this. Where
Speaker 1: is the Navarro theme in the White House? I mean,
Speaker 1: if you you beautifully frame out the dynamics of China
Speaker 1: versus US, and we've had the reports of sub six
Speaker 1: percent GDP, etcetera, how does Dr Navarro fold into this
Speaker 1: and influencing a president who has his own policy, his
Speaker 1: discrete policy and trade. You know, that's an interesting question,
Speaker 1: and I really wish there was less of a focus
Speaker 1: on Peter Navarro as this sort of outlier in the administration.
Speaker 1: USCR Lifetiser has created the nuclear bomb of these cairas
Speaker 1: he went through the section three of one investigation for
Speaker 1: a year and a half before he published it. He
Speaker 1: gave us all the tools of this trade um. President
Speaker 1: Trump has very long held that China is an aggressor
Speaker 1: and it's stealing our I p and I think that
Speaker 1: there are folks way downstream from that at the State
Speaker 1: Department at Defense UM and you can see that in
Speaker 1: the scifious work and treasury stuff that they're working on.
Speaker 1: The State Department just last week rolled out a draft
Speaker 1: set of guidance for anyone using anything that has any
Speaker 1: kind of surveillance capabilities, whether intentional or not. If you
Speaker 1: can have an audio or a visual surveillance of any
Speaker 1: American in anything that you're developing, they want to crack
Speaker 1: down on and make sure it doesn't get exported. So
Speaker 1: I think it's a misread to think that this is
Speaker 1: one guy ship John wants to jump in here. But
Speaker 1: to be clear, here, you're saying Mr Leightheiser and Dr
Speaker 1: Navir are much closer together than we think. Yes, absolutely,
Speaker 1: and a whole bunch of other folks at the administration.
Speaker 1: I mean you can't. You can't say that only one
Speaker 1: guy believes this is true if the other guy is
Speaker 1: the one who's creating the legal framework for putting the
Speaker 1: tires on too, to substantiate the claim that you know
Speaker 1: Mr Navarro is making, and to some degree, that very
Speaker 1: same mistake was made last week when John Bolton left
Speaker 1: the White House and many people assumed that maybe we'd
Speaker 1: have a change of direction with Iran, and then you
Speaker 1: saw how quickly Secretary Pompeio was to tweet over the
Speaker 1: weekend and blame the Iranians for what happened. Henrietta, what
Speaker 1: is your view on what happens next, just with regards
Speaker 1: to Iran going into the UN General Assembly over the
Speaker 1: next week. UM, well, there's definitely a lot of data
Speaker 1: gathering going on right now. I assume that you know,
Speaker 1: the Big eight on Capitol Hell have been briefed. They'll
Speaker 1: be Armed Services and for an affairs briefings. UM. Saudi
Speaker 1: Arabia will have to clarify exactly how much has been
Speaker 1: clamped down on UM. The Iranian meeting seems pretty clear
Speaker 1: from Iran side anyway is not going to happen with
Speaker 1: President Trump. So I guess we sort of have to
Speaker 1: take his word for that at the moment. But a week,
Speaker 1: as you all know in d C, is a very
Speaker 1: long time and they don't really even get to work
Speaker 1: till tomorrow. So I expect it to be quite a
Speaker 1: few changes. But I am what sink closely to see
Speaker 1: how China and Iran interact, whether China UM has any
Speaker 1: kind of data points about oil shipments from Iran, UM,
Speaker 1: whether the United States is being interested in pursuing secondary sanctions.
Speaker 1: I think there's a lot of potential. I'm not necessarily
Speaker 1: guarantee a potential for the Iranian situation to believe into
Speaker 1: the China talks. Well, Henry I Sai, let's talk about that.
Speaker 1: Just how do these two very different situations crossover. Well,
Speaker 1: because China has had, along with Russia and Iran, a
Speaker 1: much closer working relationship in the United States would like,
Speaker 1: and so when we talk with counsel and say, you know,
Speaker 1: what are the issues we have with China. Of course
Speaker 1: we can go through IP enforced tech transfer and all that,
Speaker 1: but there's also the global presence component about whether or
Speaker 1: not the American sanctions are really working to the greatest
Speaker 1: extent possible, or whether some of the nation are trying
Speaker 1: to interact with them. So it's it's not a direct link,
Speaker 1: but it it's a mistake to think that the US
Speaker 1: China tensions are only about UM many functuring. There about
Speaker 1: a whole bunch of humanitarian components as well, of which
Speaker 1: this could ultimately be one, and hearing about secondary sanctions
Speaker 1: comes up every once in a while with staff. Henry
Speaker 1: had one final question. This has been great. I just
Speaker 1: tweeted out and this has been wonderful, Henria Treys. Is
Speaker 1: Congress locked and loaded? I mean the president is locked
Speaker 1: and loaded. Is Congress locked and loaded? You know, that's
Speaker 1: an interesting question kind of mine reached out last night
Speaker 1: and they were saying, you know, what does this mean
Speaker 1: for foreign arms sales? And we've seen that the Trump
Speaker 1: administration Yes, thank you Cone. Yeah, so we've seen that
Speaker 1: the Trump administration has specifically been really excited to talk
Speaker 1: about arms styles, as we saw with Saudi Arabia just
Speaker 1: the last few months. Who the president can put a
Speaker 1: price tag on it, He can say, you know, we're
Speaker 1: reducing the trade deficit or whatever back of economic indicat
Speaker 1: to look at UM and senators have been very dismissive
Speaker 1: of that. And I think that this is a situation
Speaker 1: that is definitely short of locked and loaded, but could
Speaker 1: be an important Vinceir, particularly if there's sustained disruptions, and
Speaker 1: Saudi Arabia says, Yo, this is really bad. We have
Speaker 1: a real problem. It's going to take us months to
Speaker 1: get this supply back online. Um, that could be a
Speaker 1: game changer. This is big enough to create a locked
Speaker 1: and loaded scenario, but that does not exist at this time.
Speaker 1: N Thank you so much, Hender, And the tray is
Speaker 1: just brilliant there in China currencies. You get a sense
Speaker 1: of kind of what's going on in the world of currencies.
Speaker 1: Who welcome Mark Chandler. Bonobob Burn, Global Foreks, Chief market
Speaker 1: strategist joins us here in our Bloomberg Interactive Broker studio. Mark,
Speaker 1: thanks so much for being here. So again, you wake
Speaker 1: up this morning, you come in on a Monday morning,
Speaker 1: and you see oil of double digits across the world
Speaker 1: in terms of w T I and Brent, how does
Speaker 1: that impact kind of how you go about your week
Speaker 1: here thinking about currency and talking to your clients and
Speaker 1: kind of how to be positioned. Sure, you know in
Speaker 1: the fun exchange market, are week really begins Sunday afternoons,
Speaker 1: so we saw what was happening as the Asian markets
Speaker 1: opened up, and I think that's one of the takeaways
Speaker 1: is that typically we get a very exaggerated response reaction
Speaker 1: in Asia where we still have relatively thin markets. And
Speaker 1: I think that's when we saw that oil make the
Speaker 1: extreme and where dollar yen made an extreme, and I
Speaker 1: think the initial knee jerk reaction the FX market was
Speaker 1: to excuse me, was to buy the end as sort
Speaker 1: of a safe haven play and buy the currencies that
Speaker 1: are often seen as sensitive to oil, so that would
Speaker 1: be the Canadian dollar, Norway as well as the Russian ruble.
Speaker 1: And that's what we've basically seen are the markets telling
Speaker 1: you when you when you look at those currencies that
Speaker 1: this might be a short term issue or there might
Speaker 1: be a little bit more going on here in terms
Speaker 1: of supply of oil. Yes, in the long run. You
Speaker 1: know what I really look at currencies. I tend to
Speaker 1: focus much more on the capital flows than the flow
Speaker 1: of goods, and oil is just to flow with the goods. Okay,
Speaker 1: this is what I really like about the FX market.
Speaker 1: Five trillion dollars a day and over that means by Thursday,
Speaker 1: in a week four days, we need enough, we see
Speaker 1: enough turnover to cover world trade for a year. So
Speaker 1: typically I'll focus on monetary policy and those kind of
Speaker 1: things that attract capital rather than the goods trade. You're
Speaker 1: I'm new. The blue button is over there, the anthony
Speaker 1: from Sparta the same time, trying to get to it
Speaker 1: before you open said mouth. Had to take the cork
Speaker 1: out of my mouth. Your wonderful book Political Economy of Tomorrow,
Speaker 1: about the astrology of all this one of the foundation
Speaker 1: astronomical realities. It's like Coperni Kuss is the dollars linked
Speaker 1: to oil? Really? Is that still true? Yeah? So I
Speaker 1: never was a will believe, big believe in this petro
Speaker 1: dollar type of scenario. I say, yeah, maybe in the
Speaker 1: nineteen seventies it might have been an important part. But
Speaker 1: the thing that keeps a dollar as the key asset, key,
Speaker 1: reserve currency, key invoicing currency is the depth and beath
Speaker 1: of our treasury market and that bigger, deeper, more transparent
Speaker 1: than any other bond market. And that's what I think
Speaker 1: really is behind the dollar more than oil. Is there
Speaker 1: a dollar shortage out there? Explained to our audience when
Speaker 1: they see headlines in the blogosphere we're running out of dollars.
Speaker 1: Dollars are short abroad will translate that. Yeah, So this
Speaker 1: is partly original sin in the in the in the markets,
Speaker 1: and that has when countries borrow currencies that aren't their own,
Speaker 1: they don't have the printing press for so, whether it's
Speaker 1: Chinese companies borrowing dollars, emerging markets borrowing dollars because it's
Speaker 1: cheaper to borrow dollars often than borrow their own currency.
Speaker 1: That because of all this massive borrowing of dollars in
Speaker 1: the last several years, people think that the shortage, that is,
Speaker 1: those who borrow dollars have to pay them back, and
Speaker 1: so they think that there's a big shortage of dollars
Speaker 1: because these people have to pay them back. But I
Speaker 1: look at is some of the corporate some of the
Speaker 1: corporates as well as some of the country balance sheets.
Speaker 1: A country like Saudi Arabia, for example, as the issue
Speaker 1: dollar bonds, well they have dollar receivables. Same thing with Brazil,
Speaker 1: same thing with Mexico. So I'd be looking when I
Speaker 1: think about this all a shortage issue, I'm gonna I'm
Speaker 1: gonna drill down and look at where is the real imbalanced.
Speaker 1: Who's got the natural dollars to pay back these loans.
Speaker 1: We're looking at the d X. Why the dollar in
Speaker 1: next at nine point five to today, up another third
Speaker 1: of one percent? Is there a bear case out there
Speaker 1: for the U s Dollar anywhere? Yeah, So I'm really
Speaker 1: in the case in the camp that says that the
Speaker 1: dollar has been in a ten year bull market and
Speaker 1: that bull market is nearly over and maybe make a
Speaker 1: marginal new high. Maybe you don't, but that it's the
Speaker 1: process of a lower and extreme of the markets. Tends
Speaker 1: to be a process, and I think that process is
Speaker 1: already underweigh in the US just thinking about's going to
Speaker 1: happen later this week. The Federal Deserve is most likely
Speaker 1: going to cut twenty five basis points. The ECB cut
Speaker 1: ten basis points last week and maybe cut ten basis
Speaker 1: points before the end of the year. Meanwhile, we'll probably
Speaker 1: cut at least fifty before the end of the year
Speaker 1: while they cut twenty. And so I'm looking at interest
Speaker 1: rate differentials moving against the US over time, and this
Speaker 1: is really important. This is absolute analysis versus what you know.
Speaker 1: Your acclaimed career Mark Chandler, which is a study of
Speaker 1: relative analysis. This what is the relative shock of this
Speaker 1: oil tobacco for Saudi Arabia versus the shock that there
Speaker 1: would have been an OPEC uh in OPEC one or
Speaker 1: OPAC or on from there. I mean, it's a different
Speaker 1: calculus now, isn't it. I agree fully, And I think
Speaker 1: that one of the biggest changes in the last several
Speaker 1: years has been the US has emerged as a premier
Speaker 1: export of oil. And I think that was in June
Speaker 1: that the U s past Saudi Arabia and their exports.
Speaker 1: Saudia's caught up in in July August, but we're gonna
Speaker 1: let us shore pass him again. I think that the
Speaker 1: US is not energy sufficient. We just we still are
Speaker 1: importing about six million barrels a day. But this hasn't
Speaker 1: been a big change in the rule of the dollar,
Speaker 1: the rule of the oil markets in general. We gotta
Speaker 1: leave their mark. Chandler, thank you so much for bannockburn
Speaker 1: uh this morning. Greatly. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, Suncloud,
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane Before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio