WEBVTT - Surveillance: Saudi Oil Supply With Tchilinguirian 0:00:00.080 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.760 Bloomberg dot Com, and of course, on the Bloomberg. Your 0:00:28.800 --> 0:00:31.960 top story, quite clearly what happened with Sarly Arabia through 0:00:32.000 --> 0:00:34.960 the weekend. Sari A Ramco losing about five point seven 0:00:35.080 --> 0:00:39.360 million barrels per day of output after ten unmanned error 0:00:39.440 --> 0:00:43.360 vehicles struck the world's biggest crude processing facility as well 0:00:43.360 --> 0:00:46.720 as the Kingdom's second largest oil field. I'm pleased to 0:00:46.760 --> 0:00:48.720 say that joining us on the phone, Harry Chill and 0:00:48.720 --> 0:00:52.519 Garian joined us now BMP parabas head of Commodity market Strategy. 0:00:52.800 --> 0:00:54.320 Great to have you with us, Harry. Let me begin 0:00:54.480 --> 0:00:56.880 with the first and obvious question. How long will it 0:00:56.880 --> 0:01:00.120 take a Ramco to bring disrupted production back on line? 0:01:00.160 --> 0:01:03.560 It's a consequence how long can Saudi tap inventories without 0:01:03.560 --> 0:01:08.440 disrupting flows to customers. I think that's a really difficult question. 0:01:08.880 --> 0:01:11.560 Right now. We don't have yet a status report in 0:01:11.640 --> 0:01:14.720 terms of damage, in particular at the Upcake refinery. As 0:01:14.720 --> 0:01:17.720 you know, Aramco announced on Sunday that it should produce 0:01:17.760 --> 0:01:19.640 such a report within forty eight hours, So I guess 0:01:19.640 --> 0:01:22.200 we're gonna have to wait and see what the level 0:01:22.200 --> 0:01:25.360 of damage is. UH. Certainly Saudi Arabia, in terms of 0:01:25.400 --> 0:01:28.040 its commitments to its customers, will be able to keep 0:01:28.120 --> 0:01:30.760 supplying the market and as storage at its main all 0:01:30.880 --> 0:01:34.520 terminals like RUSTLANDEUF has pre position oil all across the world, 0:01:34.880 --> 0:01:38.440 from Europe to Asia, UH to the to the US market. 0:01:38.520 --> 0:01:41.520 So I think that they could easily go a month 0:01:41.600 --> 0:01:44.480 in terms of meeting their commitments. But really the key 0:01:44.520 --> 0:01:47.160 issue is the level of damage and Upcake because that 0:01:47.280 --> 0:01:52.560 processing facility is key to making marketable commercial crude for 0:01:52.720 --> 0:01:55.440 export to customers. We'll talk about the geopolitics in just 0:01:55.480 --> 0:01:58.040 a moment, Harry, But the questions about the vulnerability of 0:01:58.080 --> 0:02:03.280 a Ramco's infrastructure, I don't think it going anywhere, are they? Well, 0:02:03.360 --> 0:02:07.000 this recent attack really is an escalation in terms of 0:02:07.800 --> 0:02:11.600 the ability to reach Saudi oil infrastructure by in theory 0:02:12.040 --> 0:02:18.440 Houti rebels backed by Iran UH to tend strong drone attack, 0:02:18.639 --> 0:02:22.560 which obviously has not yet happened before the previous attacks 0:02:22.560 --> 0:02:25.520 by drones are in in comparison or relatively low level 0:02:25.520 --> 0:02:28.400 in terms of importance. So the question really here is 0:02:28.680 --> 0:02:31.720 whether or not these Houti rebels have the means to 0:02:32.440 --> 0:02:35.160 replicate such attacks in the future. So, yes, we have 0:02:35.200 --> 0:02:40.640 an escalation in terms of geopolitical risk on oil supply, 0:02:40.760 --> 0:02:42.720 and the market is going to have to reprice that 0:02:42.720 --> 0:02:45.600 that risk premium. So Harry, let's talk about the geopolitics 0:02:45.639 --> 0:02:48.160 over the weekend. Secretary Pompey are very quick on Twitter 0:02:48.200 --> 0:02:50.680 to come out and say the Tayran is behind nearly 0:02:50.720 --> 0:02:53.720 a hundred attacks on Saudi Arabia, while Rahanigans a reef 0:02:53.760 --> 0:02:56.239 pretend to engage in diplomacy. Amid all the calls for 0:02:56.280 --> 0:02:58.919 the escalation, Iran is now launched an presidented attack on 0:02:58.919 --> 0:03:01.600 the world energy supply. There is no evidence the attacks 0:03:01.639 --> 0:03:05.560 came from Yemen. The president has been very restraint compared 0:03:05.600 --> 0:03:09.400 to Secretary Pompeio. The presidents saying the following that Saudi 0:03:09.440 --> 0:03:11.920 Arabia's all supply was attacked. There is no reason to 0:03:11.960 --> 0:03:13.960 believe that we know. There is a reason to believe 0:03:14.000 --> 0:03:17.080 that we know. The culprit rather are locked and loaded, 0:03:17.120 --> 0:03:19.440 dependent on verification, but are waiting to hear from the 0:03:19.520 --> 0:03:21.400 Kingdom as to who they believe was the cause of 0:03:21.480 --> 0:03:24.920 this attack and under what terms we would proceed. What 0:03:24.960 --> 0:03:27.639 do you make of the information vacuum over the weekend 0:03:27.760 --> 0:03:30.560 and into the beginning of the week carry well in 0:03:30.639 --> 0:03:34.000 terms of like identifying culprits. Of course, the US was 0:03:34.040 --> 0:03:37.480 prompt to point a finger at Iran, but the President's 0:03:37.480 --> 0:03:40.840 communication has been, as you as you just mentioned, extremely reserved, 0:03:41.080 --> 0:03:44.840 not mentioning any names, because in the end, whatever conclusion 0:03:44.880 --> 0:03:46.480 they're going to reach, you're gonna have to think of 0:03:46.520 --> 0:03:49.640 what would be called a proportionate or measured response to 0:03:49.720 --> 0:03:52.760 the attack that that was committed. So I guess again 0:03:52.840 --> 0:03:57.000 being extremely cautious in terms of warning. And however, you 0:03:57.000 --> 0:04:00.680 you always have this differences in communication, and you've highlighted 0:04:00.720 --> 0:04:02.480 them between the White House being a little bit more 0:04:02.520 --> 0:04:06.280 cautious than the the U S Secretary of State. Now 0:04:06.560 --> 0:04:09.000 in terms of the geo politics. Was really interesting is 0:04:09.000 --> 0:04:12.280 the fact that this attack has really come shortly after 0:04:12.400 --> 0:04:15.840 the dismissal of John Bolton as National Security Advisor, and 0:04:15.920 --> 0:04:18.839 that had lifted I guess some hopes that the US 0:04:18.960 --> 0:04:23.000 may adopt a different strategy towards Iran, and even some 0:04:23.120 --> 0:04:26.520 speculating the President Trump's and Ronnie could meet at the 0:04:26.560 --> 0:04:31.239 UN Generally Assembly UH albeit informally. Of course, the oughts 0:04:31.240 --> 0:04:35.159 of any such meeting now have changed greatly the recent attacks. Harry, 0:04:35.200 --> 0:04:37.640 we are thrilled to start our hour with you with 0:04:37.720 --> 0:04:41.799 b MP prry By. You've been around since with you, Harry, 0:04:41.800 --> 0:04:43.680 you were with John Rockefell or I think in the 0:04:43.720 --> 0:04:46.919 Pennsylvania mountains there a few years back, looking for the 0:04:46.960 --> 0:04:51.600 first barrel oil in Pennsylvania. It's not your well, it's 0:04:51.640 --> 0:04:56.160 not your father's oil crisis. Our dependency on oils less. 0:04:56.240 --> 0:04:59.560 And as Greg Valier brilliantly says in his note this morning, 0:05:00.120 --> 0:05:04.480 the US is basically oil sufficient and with this attack 0:05:04.960 --> 0:05:09.680 China gets hammered. Do you agree with Mr Vllier? Well, 0:05:09.800 --> 0:05:12.479 I would. I would say that the US is not 0:05:12.720 --> 0:05:16.599 necessarily self sufficient, as a large surplus of light oil 0:05:17.120 --> 0:05:19.400 and a lot of its refineries are dependent on a 0:05:19.480 --> 0:05:22.760 heavier quality of oil. So the US is, rather than 0:05:22.800 --> 0:05:29.200 being energy independent, is basically becoming a very large energy exporter, 0:05:29.640 --> 0:05:32.679 so rivaling in production the likes of Saudi and Russia 0:05:32.960 --> 0:05:36.640 and emerging onto its own in terms of UH uh 0:05:36.839 --> 0:05:41.360 AN exporting superpower. Now in terms of implications, of course, Uh, 0:05:41.640 --> 0:05:45.880 Saudi Areba supplies multiple countries, but the share of Saudi 0:05:45.960 --> 0:05:49.240 crude imforce into the US has steadily declined. And yes, 0:05:49.360 --> 0:05:52.039 China and a number of other Asian countries a highly 0:05:52.120 --> 0:05:56.440 dependent on Middle Eastern oil coming through the vital passageway 0:05:56.520 --> 0:05:58.800 of the Strait of hormones. So I tend to say that, 0:05:58.880 --> 0:06:02.159 you know, Uh, in terms of relative impacts, of course 0:06:02.680 --> 0:06:05.560 the sheriff Saudi imports into the US as lesson. But 0:06:06.320 --> 0:06:10.520 and however Asian countries themselves are far more exposed. Yes, 0:06:11.200 --> 0:06:13.480 some people might say we've been quite complacent about the 0:06:13.520 --> 0:06:15.960 geopolitical risk premium that should have been in the all market. 0:06:16.320 --> 0:06:18.839 Some people might still be saying that this morning we've 0:06:18.880 --> 0:06:22.200 had a rather big disruption to crude supplies, and that's 0:06:22.200 --> 0:06:25.039 an understatement, And yet crude is up by what eight 0:06:25.480 --> 0:06:28.520 nine in a grand scheme of things, Harry, I don't 0:06:28.520 --> 0:06:31.720 think that's the move a lot of people expected. Well, 0:06:32.040 --> 0:06:33.479 I think you know, when it when it comes to 0:06:33.480 --> 0:06:35.440 the price reaction, we were going to get that knee 0:06:35.480 --> 0:06:38.960 jerk reaction that you mentioned earlier up on the Asian 0:06:39.040 --> 0:06:41.640 open because there's very little liquidity and number of people 0:06:41.640 --> 0:06:45.120 were positioned to buy into into crude. However, as we 0:06:45.240 --> 0:06:47.640 get more reports, including from the likes of the Wall 0:06:47.680 --> 0:06:50.880 Street Journal, indicating that a third of production could swiftly 0:06:50.920 --> 0:06:54.080 return and that that is possible because production has been 0:06:54.240 --> 0:06:57.359 shut down on a precautionary basis as well. And it 0:06:57.480 --> 0:06:59.920 really just comes back down to what is a damn 0:07:00.000 --> 0:07:03.120 which assessment that up, because if the damage is modest, 0:07:03.440 --> 0:07:07.719 then we should see us for of Saudi supplies. Harry, Great, 0:07:07.760 --> 0:07:10.320 We're all going to go back. Daniel, you'regens surprise here 0:07:10.360 --> 0:07:12.640 to get updated again. Mr Chilling gurry in with b 0:07:12.800 --> 0:07:15.800 MP Perry Bond has just given us a great perspective 0:07:16.200 --> 0:07:32.840 over the years. Chin Is, As we get to our 0:07:33.120 --> 0:07:36.440 esteemed guest, why don't you bring in Michael Dart in 0:07:36.800 --> 0:07:38.400 any number of ways to Twitter. I just want to 0:07:38.440 --> 0:07:40.160 keep everyone up to speed on the news flow. First 0:07:40.160 --> 0:07:42.119 of all, we've got some reporting here at Bloomberg Sandy 0:07:42.160 --> 0:07:44.960 Window said to be less optimistic on speed of the 0:07:45.000 --> 0:07:48.000 output recovery crude with a little bit of a pop 0:07:48.000 --> 0:07:50.120 off the back of that now up ten percent. Just 0:07:50.160 --> 0:07:52.160 that headline. Tom goes to show you that the concern 0:07:52.240 --> 0:07:54.640 is a little bit beyond the speed of output recovery 0:07:54.920 --> 0:07:57.120 and towards the kind of geopolitical risk preming that we 0:07:57.120 --> 0:07:59.320 should now be baking in. But for me, the top 0:07:59.360 --> 0:08:01.560 news overnight, if we did not have these attacks on 0:08:01.560 --> 0:08:04.840 a RAMCO weekend, would be the Chinese Economic Day. Talk 0:08:04.880 --> 0:08:09.080 about that. It was dreadful. Industrial production came in at 0:08:09.160 --> 0:08:12.800 four point full percent. It is the weakest single months 0:08:12.800 --> 0:08:15.080 since to Nazan and two and it really doesn't look 0:08:15.080 --> 0:08:17.840 good at sold. And in early September, Michael Darta Mcamp 0:08:17.880 --> 0:08:22.240 Partners wrote a pristine paragraph that is data acclaim on 0:08:22.360 --> 0:08:27.200 the vixcelient relative rate, is China gonna have a new 0:08:27.240 --> 0:08:29.880 lower terminal rate? Is the United States and the rest 0:08:29.920 --> 0:08:33.000 of the developed world have a new lower terminal rate? Oh? Tom, 0:08:33.040 --> 0:08:36.240 I think there's no doubt about that. Their structural reasons 0:08:36.280 --> 0:08:40.600 that China is slowing down, obviously considering slower and lower 0:08:40.600 --> 0:08:43.880 population growth. And then on top of it, these trade 0:08:43.920 --> 0:08:47.000 shocks are certainly leaving a mark. I mean, you know, 0:08:47.040 --> 0:08:50.080 the trade wars hurting the US, hurting US manufacturing, but 0:08:50.200 --> 0:08:53.560 it's certainly damaged China more. And you can see that 0:08:53.640 --> 0:08:56.000 in the data released today. I mean I mean John 0:08:56.120 --> 0:08:59.400 Joyce Chang last week of Morgan Stanley shocked with four 0:08:59.440 --> 0:09:02.200 and a half sent as their vector their target out there. 0:09:02.400 --> 0:09:05.160 No one believes Joyce Chang premier League. Shang was speaking 0:09:05.200 --> 0:09:07.920 to Russian media of the night, actually said it's going 0:09:07.960 --> 0:09:10.360 to be difficult to hit six percent. Just how difficult 0:09:10.360 --> 0:09:12.880 will it be, Mike to hit six percent? Yeah, I 0:09:12.880 --> 0:09:15.120 mean it's you know, it's a bit of an arbitrary number, 0:09:15.160 --> 0:09:18.240 but with data like what we're seeing today, it certainly 0:09:18.280 --> 0:09:21.120 raises the question. I also look at some of the 0:09:21.160 --> 0:09:23.360 monetary growth trends in China. I mean, if you look 0:09:23.400 --> 0:09:26.480 at them, one in them to growth, these Milton Friedman indicators, 0:09:26.480 --> 0:09:30.360 they've been very, very weak. So maybe we shouldn't be 0:09:30.400 --> 0:09:34.800 completely startled that we're getting some fairly soft macro data 0:09:34.800 --> 0:09:37.439 out of China. The other thing is, you know, you've 0:09:37.480 --> 0:09:40.160 got the dollar levitating this year to you know, to 0:09:40.360 --> 0:09:45.480 President Trump's chagrin, and that tends to to hurt emerging markets. 0:09:45.520 --> 0:09:49.320 It tends to be associated with emerging market equity and 0:09:49.400 --> 0:09:53.240 fixed income under performance and slowing emerging market growth rates. 0:09:54.000 --> 0:09:55.760 And so you know, we have that as part of 0:09:55.760 --> 0:09:58.080 the backdrop as well. All of this coming at a 0:09:58.120 --> 0:10:00.240 time where we've just had a massive back up and 0:10:00.240 --> 0:10:05.800 treachery yields yield last week up more than thirty basis points. Now, 0:10:05.800 --> 0:10:08.080 I'm going to ask you a question I've been asking everybody, 0:10:08.080 --> 0:10:10.599 and everyone wants the answer to this. I wish we 0:10:10.679 --> 0:10:12.240 had a crystal bowl to know what it would be. 0:10:12.400 --> 0:10:14.360 But just how are you framing this right now? A 0:10:14.400 --> 0:10:17.559 correction in the context of a massive move through or 0:10:17.600 --> 0:10:20.760 the beginning of something new. I don't think this is 0:10:20.800 --> 0:10:23.760 the beginning of something new. I think what had happened 0:10:23.840 --> 0:10:26.360 is and especially if you look at that that last 0:10:26.480 --> 0:10:29.240 leg of the drop in the tenure yield from two percent, 0:10:29.400 --> 0:10:33.079 it was really associated with the trade war taking a sudden, 0:10:33.880 --> 0:10:36.439 an unexpected turn for the worse. And so I think 0:10:36.440 --> 0:10:40.600 a combination of things have been lifting yields. One is 0:10:40.640 --> 0:10:43.360 that there maybe it's unfounded, but there is now a 0:10:43.440 --> 0:10:46.240 renewed sense of optimism that the trade war may ease, 0:10:46.400 --> 0:10:50.320 that President Trump maybe moving towards some kind of a deal, 0:10:50.360 --> 0:10:53.120 even if it's a minor deal. There were also fears 0:10:53.160 --> 0:10:56.720 of a hard brexit. Those fears have receded to some degree, 0:10:57.480 --> 0:10:59.959 uh in the macro data in the US while it's 0:11:00.040 --> 0:11:03.280 certainly not super robust, we're not falling off a cliff. 0:11:03.320 --> 0:11:06.200 And you saw that with retail sales this past week. 0:11:06.280 --> 0:11:09.200 Everybody follows you, Michael Dard, going, great, why are we 0:11:09.320 --> 0:11:11.440 ner record highs on equities? I mean, how do you 0:11:11.520 --> 0:11:14.720 just flip the reciprocal on the new terminal value when 0:11:14.720 --> 0:11:16.840 it gives you higher equity valuations? I don't buy it. 0:11:16.880 --> 0:11:20.720 What's your conviction in the stock market? Well, I would, 0:11:21.080 --> 0:11:24.320 you know, take a more cautious stance on on equities here, 0:11:24.400 --> 0:11:26.840 just given the fact that we're pretty close to the 0:11:26.880 --> 0:11:29.800 highs of the year, and I still think there are 0:11:29.880 --> 0:11:33.520 business cycle risks out there. So even with this reversal 0:11:33.600 --> 0:11:37.880 and yields that John mentioned, you still have the treasury 0:11:37.920 --> 0:11:41.640 yield curve inverted. This will be the seventeen consecutive week. 0:11:42.120 --> 0:11:46.000 You know, if if today's action continues throughout the balance 0:11:46.000 --> 0:11:48.439 of the week, where the ten year yield has been 0:11:48.440 --> 0:11:51.200 you know, has has been inverted visa VI the three 0:11:51.240 --> 0:11:55.040 month T bill. So ten year yields being below tea 0:11:55.120 --> 0:11:58.320 bills and a sustained fashion you know, has preceded every 0:11:58.360 --> 0:12:01.240 recession going back to the ninet sixties. And so I 0:12:01.280 --> 0:12:04.360 do think there's certainly call for some caution here on 0:12:04.480 --> 0:12:06.600 risk assets. Would you make the argument, Mike, just to 0:12:06.679 --> 0:12:09.880 round things up, that maybe we got too pessimistic, that 0:12:09.920 --> 0:12:12.320 if you look at the global surprise indicators finally we 0:12:12.400 --> 0:12:14.360 turned positive in the last couple of weeks, that the 0:12:14.440 --> 0:12:18.000 estimates the forecast just got too pessimistic versus the reality 0:12:18.040 --> 0:12:20.080 of the actual day that was coming through. Yeah, I 0:12:20.120 --> 0:12:23.720 think that's that's a totally reasonable argument. Um. I mentioned 0:12:23.760 --> 0:12:26.240 that big fall off from the two percent level and 0:12:26.280 --> 0:12:29.280 the tenure treasury yield just seem to be associated with 0:12:29.320 --> 0:12:32.480 a lot of pessimism centered around the trade war and 0:12:32.480 --> 0:12:37.040 in some of these other um global factors that enforces 0:12:37.120 --> 0:12:40.880 that have been creating a falling confidence. So if those reverse, 0:12:40.920 --> 0:12:43.440 you'd expect the bond yields to to reverse. The question 0:12:43.520 --> 0:12:45.640 is do we keep running up from here and yields? 0:12:45.640 --> 0:12:49.000 And I'd be a little more skeptical cautious on that view. 0:12:49.440 --> 0:12:52.400 Michael Darted, thank you so much, greatly appreciated m came partners. 0:12:52.440 --> 0:12:54.520 Too much news, slow, too little time to talk. We'll 0:12:54.559 --> 0:13:15.160 get a a longer discussion. EIMR a can Oxford Institute 0:13:15.160 --> 0:13:18.600 for Energy. It is a spectacular twenty pages of dense, dense, 0:13:18.679 --> 0:13:22.160 dense microeconomics on how we come up with an oil 0:13:22.200 --> 0:13:25.760 price That leads us to Ted Alden. Edward Alden's Failure 0:13:25.800 --> 0:13:28.840 to Adjust How Americans Got Left Behind was a superb 0:13:28.880 --> 0:13:32.200 book a number of years ago and still highly valuable 0:13:32.240 --> 0:13:35.600 to anybody interested in our trade world. And Ted Alden 0:13:35.679 --> 0:13:39.320 joins us from our Washington studios right now, Ted, I 0:13:39.320 --> 0:13:43.200 want to rip up the script here and talk not 0:13:43.280 --> 0:13:46.760 about the gloom of our failure to adjust. But we 0:13:46.880 --> 0:13:51.680 adjusted to oil. We had oil shock one oil shock too, 0:13:52.440 --> 0:13:56.680 and somehow America came out of this more independent on 0:13:56.800 --> 0:14:00.440 hydrocarbon's how do we do it well? I may not 0:14:00.520 --> 0:14:03.040 be the best guy to ask that on the energy front, 0:14:03.040 --> 0:14:05.200 but we got right now. You not not fair enough, 0:14:05.320 --> 0:14:08.440 fair enough. But I think there is a general point 0:14:08.559 --> 0:14:11.200 which is one of the great strengths of the American 0:14:11.200 --> 0:14:15.400 economy over many decades now, is that it is highly adaptable. 0:14:15.440 --> 0:14:18.480 I mean, we adapted to the all shocks of the seventies. 0:14:18.520 --> 0:14:20.520 I mean I was pretty young then, but I remember 0:14:20.680 --> 0:14:23.080 quite well. I remember the gas lineups, and it was 0:14:23.120 --> 0:14:26.040 a difficult transition, but we made it. We adjusted to 0:14:26.080 --> 0:14:30.000 the Japanese competition of the nineteen eighties and the nineteen nineties. 0:14:30.320 --> 0:14:35.400 We are a highly flexible, adaptable economy, but it but 0:14:35.520 --> 0:14:41.000 it takes effort. It actually takes both business and government 0:14:41.360 --> 0:14:44.120 and and some of the initiatives. I think we're gonna 0:14:44.200 --> 0:14:47.160 need to adapt to this generation of shocks we're not 0:14:47.240 --> 0:14:49.240 seeing come out, partly because of the dysfunction of our 0:14:49.240 --> 0:14:52.000 political system. Right what's been amazing is the productivity story 0:14:52.040 --> 0:14:54.360 as well for US crewed it's been a technology story 0:14:54.360 --> 0:14:59.160 as much as technology been absolutely incredible tet and now 0:14:59.160 --> 0:15:00.920 there's a lot of people trying to figure out every 0:15:00.960 --> 0:15:02.760 time we have some kind of oil shock one way 0:15:02.840 --> 0:15:05.200 or the other, trying to figure out on net whether 0:15:05.640 --> 0:15:07.960 higher or lower oil prices is what's best for the 0:15:08.000 --> 0:15:11.680 American economy. How on earth do you make that calculation? Well, 0:15:11.720 --> 0:15:14.000 I mean, I think if you look at the growth numbers, 0:15:14.040 --> 0:15:17.920 it's it's pretty clear that higher oil prices are harmful 0:15:17.960 --> 0:15:20.560 to the US economy. Pretauld be such a large oil 0:15:20.640 --> 0:15:22.760 producer now that on net it's a good thing. But 0:15:22.840 --> 0:15:25.640 your point is it's not as straightforward to calculation as 0:15:25.680 --> 0:15:27.640 it was to say in the seventies and eighties. Then 0:15:27.840 --> 0:15:31.440 you know, Ohio, oil prices across the board were bad. Now, 0:15:31.480 --> 0:15:34.440 because we're such a large producer, it hurts the US 0:15:34.480 --> 0:15:38.120 economy less than it does other competitor economy, So it's 0:15:38.120 --> 0:15:40.760 a more difficult calculation, absolutely, no question. So what does 0:15:40.760 --> 0:15:43.360 it mean for policy going forward? Elizabeth Warren sent it 0:15:43.400 --> 0:15:45.680 to Warren coming out quite recently on her Twitter accounts 0:15:45.680 --> 0:15:48.720 saying she would band fracking everywhere's head, I mean, on 0:15:48.720 --> 0:15:50.720 the service of things. It's a rather large statement, and 0:15:50.800 --> 0:15:52.920 no one has any idea whether she can actually do that. 0:15:53.200 --> 0:15:54.760 But what do you make of those kind of statements 0:15:54.760 --> 0:15:58.720 from the Democrats. Well, it's I mean, electorally, that's a 0:15:58.800 --> 0:16:03.320 challenging one, right, mean, fracking has helped a lot of economies, 0:16:03.800 --> 0:16:10.680 local economies around the country. There are obviously significant environmental issues. Again, 0:16:10.720 --> 0:16:13.320 I think that the history tends to suggest that those 0:16:13.360 --> 0:16:15.680 can be managed in a way that you don't have 0:16:16.080 --> 0:16:20.880 a complete trade off between growth and environmental protection. I worry, 0:16:20.960 --> 0:16:22.800 and you know, again, as Tom and I was getting 0:16:22.800 --> 0:16:24.840 a little out of my areas here. But but you know, 0:16:24.840 --> 0:16:26.720 one of the things that happened in the seventies with 0:16:26.760 --> 0:16:29.040 the creation of ep A and other things, was that 0:16:29.040 --> 0:16:31.840 that you had a set of regulations go into place 0:16:31.880 --> 0:16:35.600 that allowed growth to proceed, but also focused on environmental 0:16:35.600 --> 0:16:38.280 protection where it really matters. I worry about the dismantling 0:16:38.360 --> 0:16:41.440 of those things going on in the current administration. I 0:16:41.480 --> 0:16:43.160 don't think it's in either or. I think you can 0:16:43.200 --> 0:16:46.120 protect the environment and do the things that are necessary 0:16:46.200 --> 0:16:48.880 for strong growth. We welcome all of you on Bloomberg Surveillance. 0:16:49.000 --> 0:16:51.480 Edward Alden with US. He's with the Council on Foreign Relations. 0:16:51.560 --> 0:16:53.880 His book Failure to Adjust. John Farrell and I are 0:16:53.880 --> 0:16:57.920 adjusting to more data checks, futures of negative eleven oil 0:16:58.040 --> 0:17:02.160 seventy two ish, the high was seven right down to 0:17:02.320 --> 0:17:05.080 sixty eight dollars a barrel, and Brent and then John, 0:17:05.119 --> 0:17:07.280 we got down here sixty five is should we've come 0:17:07.320 --> 0:17:09.199 back a little bit last our a little bit of 0:17:09.200 --> 0:17:12.280 a lift here off the President with a couple of 0:17:12.280 --> 0:17:14.400 tweets that I'd like to bring to you all just briefly, 0:17:15.000 --> 0:17:19.960 right now, right here, right now. In China shrank most 0:17:20.000 --> 0:17:22.160 in three years due to China's big evaluation of their 0:17:22.160 --> 0:17:25.520 currency coupled with monetary stimulus. Federal Reserve not watching Will 0:17:25.520 --> 0:17:27.880 the Fed ever get into the game. The dollars strongest ever, 0:17:27.960 --> 0:17:30.640 really bad for export to no inflation, highest interest rates 0:17:30.680 --> 0:17:32.720 the United States because of the FED is paying a 0:17:32.840 --> 0:17:36.800 much higher rate than other competing countries. They can't believe 0:17:36.840 --> 0:17:38.680 how lucky they are that j Palal and the Fed 0:17:38.960 --> 0:17:40.680 don't have a clue. And now on top of it all, 0:17:40.840 --> 0:17:43.520 they all here big interest rate drop stimulus is he 0:17:43.680 --> 0:17:45.720 listened to us because he knows we have old us. 0:17:45.800 --> 0:17:47.680 So Ted just talked to me about this because many 0:17:47.680 --> 0:17:50.680 people find it hard to reconcile the call for stimulus 0:17:51.359 --> 0:17:54.639 with the projection of the idea from this administration that 0:17:54.680 --> 0:17:58.640 this economy is totally fine and rock solid. Well, I mean, 0:17:58.680 --> 0:18:01.879 has there ever been of president who didn't want lower 0:18:01.920 --> 0:18:06.280 interest rates going into his re election year? So most 0:18:06.280 --> 0:18:08.880 of them have not been quite so public about bashing 0:18:08.880 --> 0:18:12.480 the Federal reserve. But but this is something that presidents 0:18:12.480 --> 0:18:14.480 always want. I mean that the economy can never be 0:18:14.560 --> 0:18:17.159 too strong going into an election year. Trump's clearly not 0:18:17.200 --> 0:18:19.159 worried about overheating, and to be fair, there aren't a 0:18:19.160 --> 0:18:22.200 lot of signs of overheating. Problem is the FED doesn't 0:18:22.200 --> 0:18:24.439 have a lot more ammunition, right, I mean it could 0:18:24.720 --> 0:18:26.959 a little faster, but but it's not a whole lot 0:18:27.080 --> 0:18:31.119 it can do to further boost the economy going into twenties. 0:18:31.440 --> 0:18:33.879 It's micro economics Monday. We've been doing that with oil 0:18:34.160 --> 0:18:36.000 and and it's been a joy. Let's do it with 0:18:36.040 --> 0:18:39.000 ted Alden now. And trade. Part of this is the 0:18:39.080 --> 0:18:43.560 substitution effect. If we, as a president clearly in this tweet, 0:18:43.640 --> 0:18:47.439 suggests it's US and China, ted Alden is gonna say, no, 0:18:47.600 --> 0:18:51.800 it's not, and that there are indirect and direct leakages 0:18:52.520 --> 0:18:55.920 where the trade slips out of China to a dynamic 0:18:55.960 --> 0:19:00.320 with other countries. How evident, how pronounced is that subtitution 0:19:00.520 --> 0:19:06.200 affect Well, you're seeing it certainly in in Asia, particularly 0:19:06.320 --> 0:19:09.200 with the growth of exports from Vietnam. And you're seeing 0:19:09.200 --> 0:19:12.439 this administration now target Vietnam and say, oh, you know, 0:19:12.520 --> 0:19:15.520 Vietnam's trade surplus with the United States is soaring. That's 0:19:15.520 --> 0:19:19.160 the problem we need to do something about. So so 0:19:19.280 --> 0:19:22.600 that's been the most significant kind of leakage we've seen already, 0:19:22.640 --> 0:19:26.439 but it will certainly grow if the if the trade 0:19:26.480 --> 0:19:29.240 war continues. In a lot of ways, we're still in 0:19:29.320 --> 0:19:32.800 the fairly early stages here because what's at stake is 0:19:33.119 --> 0:19:37.439 long term investment decisions by companies. Are they confident that 0:19:37.520 --> 0:19:40.119 they can continue to export from China to the United States. 0:19:40.280 --> 0:19:42.920 If the answer is yes, they probably stay put. If not, 0:19:43.040 --> 0:19:46.480 they have to think about either relocating existing investments or 0:19:46.480 --> 0:19:48.840 where they make future investments. So so there's a very 0:19:48.880 --> 0:19:51.679 long tail on this. Yeah, it's gonna be interesting. I 0:19:51.680 --> 0:19:54.919 mean within that long tail and just simple immediate discussions 0:19:54.920 --> 0:19:58.959 of October. What's on Ted Alden's date calendar for October 0:19:59.040 --> 0:20:03.000 to indicate how this trade war unravels or how this 0:20:03.080 --> 0:20:06.199 trade war moves forward. Well, you know, always hesitate to 0:20:06.240 --> 0:20:08.280 say that, you know, the next round of negotiations is 0:20:08.320 --> 0:20:10.560 the critical one, but I think the one coming up 0:20:11.119 --> 0:20:14.240 between the United States and China in October is critical. 0:20:14.280 --> 0:20:17.600 The last couple of efforts to restart the talks since 0:20:17.640 --> 0:20:20.919 they broke down and may have been catastrophic failures that 0:20:21.040 --> 0:20:25.160 have resulted in further escalation. I think if there's going 0:20:25.280 --> 0:20:29.359 to be any sort of reasonably durable truce, it's going 0:20:29.400 --> 0:20:31.600 to have to happen at this October meeting and then 0:20:31.640 --> 0:20:35.920 maybe be cemented when Trump and Chinese President juja Paying 0:20:35.960 --> 0:20:38.680 meet at at a peck in Chile in November. So 0:20:38.800 --> 0:20:40.760 I think I'm clearly the markets are gonna be watching 0:20:40.800 --> 0:20:44.480 this meeting very closely. They are hopeful now because of 0:20:44.520 --> 0:20:47.480 the gestures on each side, the Chinese deciding not to 0:20:47.560 --> 0:20:51.800 further raise tariffs on agriculture imports, the Trump delaying the 0:20:52.520 --> 0:20:54.919 next round of US figure so it's a big meeting. Clearly, 0:21:10.080 --> 0:21:13.200 it's slipping under the radar some really weak Chinese economic data, 0:21:13.280 --> 0:21:16.159 industrial output rising just four point four percent from a 0:21:16.240 --> 0:21:18.640 year earlier in August. A lot of people might say 0:21:18.680 --> 0:21:20.080 that sounds good for the rest of the world. It 0:21:20.200 --> 0:21:22.119 might be, but for China it's not. It's the lowest 0:21:22.119 --> 0:21:25.040 for a single month since two thousand and two. Retail 0:21:25.119 --> 0:21:28.280 sales also coming in below expectations. We've got a fantastic 0:21:28.320 --> 0:21:30.520 guest to talk to us about it, Henry had A Trays, 0:21:30.600 --> 0:21:34.560 Vada Pander's director of Economic policy Research. Henry had to 0:21:34.640 --> 0:21:38.000 just your early reaction to that economic data from China overnight. 0:21:38.920 --> 0:21:40.560 Thanks for having me. Yeah, I mean, as you mentioned, 0:21:40.560 --> 0:21:43.040 it's the worst number since two thousand of two, So 0:21:43.280 --> 0:21:46.000 obviously China is facing some pressure, and I think the 0:21:46.040 --> 0:21:51.000 Trump administration is watching that very closely. As we've discussed earlier. Um, 0:21:51.040 --> 0:21:53.480 you know, the administration feels very confident that this trade 0:21:53.520 --> 0:21:56.479 war is having a much more profound impact on China's economy, 0:21:56.520 --> 0:21:58.800 and the President she can't sustain this the way that 0:21:58.840 --> 0:22:01.240 President Trump. Do you you to that assessment? Do you 0:22:01.240 --> 0:22:04.760 agree with that? I do not, And I more importantly 0:22:04.800 --> 0:22:07.359 don't see any of the indicators coming out of China 0:22:07.400 --> 0:22:09.880 in terms of the verbiage that either President She or 0:22:09.920 --> 0:22:14.479 any of his folks downstream are using against the United States. 0:22:14.520 --> 0:22:18.320