Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: 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 Well
Speaker 1: this as well. We're throw to bring you Kenney on
Speaker 1: cf R a course years of experience and looking at
Speaker 1: banks and he's more by hold sale than what else.
Speaker 1: And Williams is doing. Ken what a bang up year
Speaker 1: last year? Can you continue to acquire shares of this
Speaker 1: of these banks this year? We do, but I think
Speaker 1: we're all boats rows in the fourth quarter. With strong
Speaker 1: stock performance for the banks, it's going to be more selective.
Speaker 1: We have an America Fast First plan, which is really
Speaker 1: the banks like Bank of America and JP that are
Speaker 1: highly concentrated in the US. That's driven by the core,
Speaker 1: which is loan growth and deposits. I would not really
Speaker 1: look to the capital markets or the strong reprint for
Speaker 1: fixed income. Last year was a very weak fourth quarter. Sequentially,
Speaker 1: it's flat to down for six from the third quarter
Speaker 1: of two thousand nineteen. So bringing it back um, what
Speaker 1: we're continually seeing as um flat or weakness outside the US. UH.
Speaker 1: The US consumer is just strong. So I think if
Speaker 1: you can drive loan growth that offsets kind of a
Speaker 1: flat environment for rates, and if you're growing accounts by
Speaker 1: expanding into new metropolitan markets like Bank of American JP,
Speaker 1: they are taking markets here from Wells Fargo. Ken, who's
Speaker 1: having success? Get in the volume side of the story
Speaker 1: up who's delivering loan growth? Um, you know clearly it's
Speaker 1: being driven by mortgage auto, but also you know what
Speaker 1: drives the US economy is small business in terms of
Speaker 1: employment growth. We're also seeing households that have pretty good
Speaker 1: balance sheets compared to where we were ten years ago. UH.
Speaker 1: I think there's a surprise on the upside. Bank analysts
Speaker 1: are generally very conservative. They look historically at price to book.
Speaker 1: But if you have the loan growth here, and you
Speaker 1: have very good credit quality via as a strong credit quality,
Speaker 1: and there's no distressed industry on the commercial side, you
Speaker 1: have a pretty good setting for financials, particularly banks, to
Speaker 1: do well in the market because they're under price relative
Speaker 1: to the market. Ken, which bank would you bet on
Speaker 1: most for this year? Well? The by recommendations we have
Speaker 1: as mentioned, our Bank of America and JP Morgan. We
Speaker 1: mentioned it's going to be a stock picking market. We
Speaker 1: have cells on Wealth Fargo and to sell in Goldman,
Speaker 1: Sachs Morgan Stanley as a hold in City as well well.
Speaker 1: Fargo just missed it, and I think Goldman, with the
Speaker 1: core being cyclical, volatile businesses and capital markets, they're going
Speaker 1: to have to have a great show on January twenty
Speaker 1: nine talking about their five year plan. Hey, ken we'll
Speaker 1: talk about that government called a little bit later in
Speaker 1: the program. Ken Ley on a CFL Ray will be
Speaker 1: sticking with us. The good news this morning the United
Speaker 1: States and China a little bit later today in Washington,
Speaker 1: d C. Set to sit around the table and sign
Speaker 1: a phase one trade deal. The bad news for investors
Speaker 1: out there at least is that the tariffs are expected
Speaker 1: to stay in place until after the November election. The
Speaker 1: issue for many of you I know, is that it
Speaker 1: leaves too many issues with China unresolved. Went again on
Speaker 1: this joining us on the phone, and please to say
Speaker 1: is Henry had a trades DA partner's managing partner and
Speaker 1: head of economic policy. Henry had to tell let's talk
Speaker 1: about it. The issues, the outstanding issues for you as
Speaker 1: we await this signing ceremony. Hey, guys, the biggest surprise
Speaker 1: for me. I mean, we've we've known a couple of
Speaker 1: mostly tales for about a month now, but the biggest
Speaker 1: surprise came yesterday with Minu Chin and U str Lifeheiser
Speaker 1: announced that there would be no upward or down or
Speaker 1: well no downward adjustment to taris for more than ten months.
Speaker 1: That's different than what Lifeheiser said about a year ago
Speaker 1: when he walked through the enforcement mechanism on the trade deal.
Speaker 1: He had explained to US a one, a two and
Speaker 1: a six month period of essentially check ins with the
Speaker 1: Chinese to see if they were essentially adhering to the
Speaker 1: Phase one deal. And last night or yesterday afternoon, they announced,
Speaker 1: you know, even if they are complying, we won't be
Speaker 1: reducing tarish for here. And the reason that that's driving
Speaker 1: markets a bit lower yesterday is because investors have this
Speaker 1: very strong sense that the president cares deeply about the
Speaker 1: stock market in particular, not so much macroeconomic data like
Speaker 1: we're used to with earlier and previous administrations and congresses,
Speaker 1: but specifically the stock market. So the hope had been,
Speaker 1: should we get to you know, September October of next year,
Speaker 1: and the president needs a boost to the stock market
Speaker 1: to help carry him over in certain states to win
Speaker 1: the election in he would drop tariffs, announce you know
Speaker 1: something else. All right, all chat doesn't seem likely. Let's
Speaker 1: talk about the numbers. So the US agreed to have
Speaker 1: the duties on twenty billion dollars of imports and delay
Speaker 1: others in return for Chinese promises, particularly on the infrastructure
Speaker 1: subsidies and others. Henrietta, how is that palatable to the
Speaker 1: Chinese government from their perspective politically to not have these
Speaker 1: rolled back in the near future and have its allayed
Speaker 1: for so for so long if it's for such political reasons,
Speaker 1: as you say, my understanding of the Chinese perspective, as
Speaker 1: they got spooked in August that the President was really
Speaker 1: quite serious about escalating tariffs on List one through three
Speaker 1: to thirty percent rates up from twenty five, and then
Speaker 1: also on imposing the List four B tariffs, which would
Speaker 1: have been a hundred and sixty billion dollars worth of
Speaker 1: additional goods shifted in from China. So their primary goal
Speaker 1: shifted away from caring about the political consequences and uh,
Speaker 1: guessing whether Trump would be re elected or not, and onto,
Speaker 1: how can we avoid further tariffs? From here? We need
Speaker 1: to in some aggs. We need some pork, So let's
Speaker 1: just move this along, Henrietta. My chart of the year
Speaker 1: was customs money coming in and it's a hockey stick,
Speaker 1: as you know, about four or five six standard deviations.
Speaker 1: Let's back off from the math. Have tariffs worked? Um,
Speaker 1: Tariffs have worked to essentially do what trade wars do,
Speaker 1: which is forced losers upon everyone. UM. I think one
Speaker 1: of the big reasons why you're not going to see
Speaker 1: a lot of companies clamoring to take part in the
Speaker 1: new sort of injunction and injustice processes in the Phase
Speaker 1: one deal is because at the end of the day,
Speaker 1: if they say that there's a problem in China's not
Speaker 1: adhering to Phase one, what happens, well, those manufacturers importing
Speaker 1: those same goods are going to see their cost rise.
Speaker 1: So UM, I think the tariff data is proving what
Speaker 1: a lot of economists have consistently said, which is that
Speaker 1: nobody wins a trade war. This is the issue, isn't it, Henrietta.
Speaker 1: The worry that this breaks down again? How long before
Speaker 1: the United States sits there realizes that, as they have
Speaker 1: done time and time again, China has agreed to something
Speaker 1: they haven't followed through on. When you look at agreement
Speaker 1: right now, Henrietta, the scarce desetails that we have at
Speaker 1: the moment before the big reveal of the aty six
Speaker 1: page document. If we do and did get it all,
Speaker 1: what is it about this particular deal that you think
Speaker 1: the samaria for some conflict further down the road. I
Speaker 1: think the conflict is helpfully pushed off until after the election.
Speaker 1: The White House has severely lost its appetite for further
Speaker 1: tariffs here. UM. There are once again calls for at
Speaker 1: least essentially as that we had into our recessionary environment
Speaker 1: in the President's largest approval numbers come from his handling
Speaker 1: of the economy. So I would not expect tariffs to
Speaker 1: rise from here, which is probably the best news that
Speaker 1: we have to look forward to. UM. But when it
Speaker 1: comes to what people are looking at the most inbound
Speaker 1: questions I get firm investors, are you know specifics, what
Speaker 1: are going to be the soy commitments? What are the
Speaker 1: purchase commitments for pork? What are the purchase commitments for ethanol? None?
Speaker 1: Of those details are going to be forthcoming and they
Speaker 1: won't ever be released, is my understanding. So the six
Speaker 1: page document is all fine and well, there will be
Speaker 1: some positive points. I will be monitoring what associations say
Speaker 1: in the aftermath praising it or UM, you know, reserving
Speaker 1: their praise for certain parts but not others. And what
Speaker 1: I really want to see is UM farmers and manufacturers
Speaker 1: on the ground saying we are so excited about x
Speaker 1: amount of purchases in whichever sector and get those hard
Speaker 1: and fast data points, because that's where President Trump's challengers
Speaker 1: will be focused, trying to prove essentially the juice was
Speaker 1: not worth a squeeze on this whole trade war and
Speaker 1: the ultimately at the end of the day, we're no
Speaker 1: better off than we were in and those details are
Speaker 1: going to be what's reserved, so that those UM talking
Speaker 1: points will never really materialize and MASSA always got to
Speaker 1: catch up with you. That's the view from Henrietta Trey's
Speaker 1: Vada Pounders, managing Powder and head of economic Policy. I
Speaker 1: do think it's really telling that we have yet another
Speaker 1: consecutive disappointment in inflation data comping in the United States,
Speaker 1: and this is the thing that's really it's a little
Speaker 1: light again. This comes after the little light CP. I
Speaker 1: are we starting to see a trend though where people
Speaker 1: are overestimating already sluggish inflation. And what does it say?
Speaker 1: I mean, John's your point about the rate cut debate
Speaker 1: heating up. I mean this basically edifies the calls for it.
Speaker 1: I mean it to some degree at least the fedge
Speaker 1: certainly is on hold. Let's bring someone in on this,
Speaker 1: and we're very fortunate to have her. Megan Green is
Speaker 1: at the Harvard Kennedy School. We really thought you would
Speaker 1: cancel this morning because she is on the shortlist to
Speaker 1: replace Mr Cora with the Boston Red Sox. She's been
Speaker 1: sitting by the phone, I know, all the morning waiting
Speaker 1: for the call. Mr Cora out at the Red Sox
Speaker 1: and the same idea as the Houston astros uh and
Speaker 1: stealing of signs. Megan Green, give us the signs and
Speaker 1: the FED right now, Lisa Brammo, which mentions a little
Speaker 1: dearth of inflation. Is that enough of a signal to
Speaker 1: the Fed to change ways? No, I don't think so.
Speaker 1: I don't think that this is enough of a mess
Speaker 1: to cause the FED to sink in expectations that are
Speaker 1: becoming on board. This is just more of the same
Speaker 1: we've seen throughout this recovery, where we've just had a
Speaker 1: dearth of inflation and investors might overestimated to do it
Speaker 1: every time, it's still not coming in. So this is
Speaker 1: not a new trend at all. And I think that
Speaker 1: the set is probably going to stay on holes through
Speaker 1: this year unless we get some kind of serious mess. So, yes,
Speaker 1: we've got the p p I slight mess, we've got
Speaker 1: the CPI yesterday slight miss. Meanwhile, Target uh kind of
Speaker 1: really driving action today with their disappointment in terms of
Speaker 1: holiday sales in the November through December period, shares down
Speaker 1: more than seven percent ahead of the market open. And
Speaker 1: I'm trying to understand how much of a signal this
Speaker 1: is that the consumer is losing steam. Can we read
Speaker 1: anything into this? No, I don't think we can read
Speaker 1: anything into you know, one release like that. If we
Speaker 1: started to see a series of releases and retail sales
Speaker 1: really gets then we might start to think that the
Speaker 1: consumer was flagging. The consumer confidences remain pretty high um
Speaker 1: and so I think so far it's too early to
Speaker 1: say that the consumers chuckered out because of course the
Speaker 1: consumers carrying its entire recovery. So once they are chuckered out,
Speaker 1: we need to worry. I just don't think we're there yet.
Speaker 1: And I just want to say, Target, though, is not
Speaker 1: the only one. J C. Penny and Cole's previously had
Speaker 1: some disappointments as well recently, although a lot of people
Speaker 1: just shrug that off because it's j C. Penny and
Speaker 1: Coals and they've been sort of struggling for a while
Speaker 1: and their business models are under attack. But Target has
Speaker 1: been very strong, and it's been growing, and it's been
Speaker 1: investing in their online presence, so you know, an increasing
Speaker 1: amount of this. At what point, I mean, if this
Speaker 1: is not enough, at what point do you start to say,
Speaker 1: wait a second, what does it say about the consumer? Well,
Speaker 1: I think we need to see other indicators of consumer
Speaker 1: demand turn as well. So in addition to the results
Speaker 1: showing it, we need to see retail sales flag, we
Speaker 1: need to see consumer confidence start to fall UM And
Speaker 1: so far there's other data points aren't coming through UM.
Speaker 1: But you know, this could be the beginning of a turn.
Speaker 1: I wouldn't extrapolate too much just yet. After a E
Speaker 1: A been talking to dr pose of the Peterson Institute
Speaker 1: Megan Green about what was accomplished their people talking about theory.
Speaker 1: Are we operating going into two thousand twenty on sound
Speaker 1: economic theory or did everybody making it up as they go?
Speaker 1: What do you teach at Harvard Kennedy on that has
Speaker 1: So I'm actually doing a lot of research into this
Speaker 1: um and my conclusion is that a lot of our
Speaker 1: theory just doesn't work anymore. A lot of the frameworks
Speaker 1: that we learned in ECO one oh one just don't apply.
Speaker 1: And so I thought it a a Actually, you know,
Speaker 1: times were really starting to accept that there was a
Speaker 1: really depressing consensus that we are just stuck with low growth,
Speaker 1: low inflation, and low rates for the future. And and
Speaker 1: that's a new consensus, I think, even though there's been
Speaker 1: plenty of evidence for it for years. Well, to rip
Speaker 1: up the script on this, and folks, this is some
Speaker 1: background and I'll be discussing this, I hope A Davos
Speaker 1: a really wonderful panel. Megan Green. It's really simple. The
Speaker 1: debate was negative rates in their efficacy. What did you
Speaker 1: learn about the negative rate debate? If we're making it
Speaker 1: up as we go amid slow growth. Well, So I
Speaker 1: think generally there's been a negative consensus about negative rates,
Speaker 1: and I think that's probably right that you know, if
Speaker 1: you push rates down that far um, you're actually punishing
Speaker 1: thanks um and you don't see any kind of credit
Speaker 1: demand develop off the back of it. So negative rates
Speaker 1: aren't the answer, I mean, in particularly not in the US. UM.
Speaker 1: There is kind of a consensus now that central banks
Speaker 1: can't be holding the bag for this recovery. And that's
Speaker 1: fairly new as well. So if it's not negative rates
Speaker 1: cutting rates um, you know, maybe it's yield curve control.
Speaker 1: Japan's had some success with it. It could be more QUI.
Speaker 1: Though in academia, I think there's a consensus and QUI
Speaker 1: hasn't really helped a whole lot overall. I think, so
Speaker 1: people are accepting the central banks aren't responsible for the
Speaker 1: this next downturn for combating it, and so we're gonna
Speaker 1: need to see fiscal authorities step in. And there's this
Speaker 1: overwhelming consensus among lots of economists who disagree on lots
Speaker 1: of things, particularly the causes of all this speak to man,
Speaker 1: But the one thing that would help all of the
Speaker 1: potential causes is productive public investment. The problem there is
Speaker 1: just the political support for that isn't necessarily there, particularly
Speaker 1: those who are worried about blowing the budget deficit. But
Speaker 1: you don't have to blow out the budget deficit to
Speaker 1: actually do productive public investment, Megan. The longer that the
Speaker 1: central banks hold the bag, when do we start talking
Speaker 1: about ascid bubbles Again, It's a great question. You know,
Speaker 1: we haven't really seen acid bubbles or merge unless you
Speaker 1: can give it everything the bubble and and and maybe
Speaker 1: you could, um, but I think that where the bubble
Speaker 1: might be starting to crop up is in private markets,
Speaker 1: not in publist markets that we can all see. Um,
Speaker 1: that's possible in terms of leverage, floans, um, you know,
Speaker 1: see a lot of things like that. But we don't
Speaker 1: have a whole lot of ter guaranty on that. And
Speaker 1: I think that could be frosty, but it's hard to
Speaker 1: have any real sense of how to quantify it. Megan
Speaker 1: Green with us at the Harvard Countedy School, And of
Speaker 1: course we can tell talk about the specifics of market economics,
Speaker 1: but we can also talk about bigger, broader themes. Megan.
Speaker 1: This morning we saw target deliver saggy comp sales, traditional sales,
Speaker 1: and their digital sales were up nineteen. What are you
Speaker 1: seeing at Harvard Kennedy about this new technology overlaying all
Speaker 1: of our business? I mean, it's something we're going to
Speaker 1: write about in ten years or twenty years, or even
Speaker 1: half a century out. But what is the effect of
Speaker 1: technology on so much of American business, including consumption? It's well,
Speaker 1: so I think in this example in retails were well, um,
Speaker 1: you know, you see the technology increases transparency and price discovery,
Speaker 1: and so that pushes prices down significantly. That provides a
Speaker 1: disinflationary force in the economy. And generally technology is doing
Speaker 1: that across the board, and so that's one of the
Speaker 1: reasons that we've seen soft inflation data and will continue
Speaker 1: to for the fort Gavel feature, Megan, just to wrap
Speaker 1: things up here, I'm wondering, looking out, where do you
Speaker 1: think we are in terms of a re acceleration or
Speaker 1: a slowdown in the global economy? Just we're looking at
Speaker 1: a slow down, no doubt. Every major economy has been
Speaker 1: growing above potentials um and we shouldn't expect that to
Speaker 1: continue without really significant amounts of monetary or fiscal stimulus.
Speaker 1: And I just don't think that we'll see that this year.
Speaker 1: So we should expect every major economy to continue to
Speaker 1: converge with potential growth, which has been lower than what
Speaker 1: growth has been over the past couple of years. Making
Speaker 1: great to catch up with you making great there, Harvard Kennedy,
Speaker 1: Senior Fellow, joining us on the phone on the latest
Speaker 1: thing economic take to and the next most with central
Speaker 1: banks worldwide. Right now, real question for investors here. You
Speaker 1: had an extraordinary twenty nineteen in terms of market performance.
Speaker 1: What do you do for Jim Paulson Luke old wed In,
Speaker 1: Capital Manager, Chief Investment Strategists, joins us to give us
Speaker 1: his thoughts. So, Jim again, it's you know, the question
Speaker 1: is what have you done for me lately? How are
Speaker 1: you thinking about positioning for Yeah? Probably I think, you know,
Speaker 1: I think that the bowl continue this year, but I
Speaker 1: think it's going to go up, you know, far less
Speaker 1: than it did last year, of course, maybe more like
Speaker 1: ten percent or something overall. Um, And I do think
Speaker 1: I think you hit the nail on the head. I
Speaker 1: think positioning is going to be the bigger issue in
Speaker 1: two thousand and twenty that I was in two thousand nineteen,
Speaker 1: rather than just buy anything around you. I think it's
Speaker 1: going to be what to buy is going to be
Speaker 1: more important. There's going to be I think a bit
Speaker 1: of a leadership shift UH during the year. If the
Speaker 1: if the global if the global recovery does revive here
Speaker 1: a little bit accelerating a little bit, which I think
Speaker 1: is happening, that tends to really change what leads. So
Speaker 1: I think in the past, every time we've recovered or accelerated,
Speaker 1: you've had international markets beat the United States. I think
Speaker 1: that's going to be one of the big themes yet
Speaker 1: this year, both developed and emerging, probably more so in emerging,
Speaker 1: but I think moving away from the US here stopper
Speaker 1: full it makes sense. I also think that cyclical areas
Speaker 1: in general UH have a much better year relative to
Speaker 1: more defensive UH investments, low volatility quality, defensive sectors and
Speaker 1: the like. And then I also think maybe UH, depending
Speaker 1: on how much we recover globally, you're you're going to
Speaker 1: see small caps which have continue to do poorly this year,
Speaker 1: but I think they're gonna maybe finally have a year
Speaker 1: about performance UM overall, and I'm I'm sticking with tech
Speaker 1: UM but but I think that's the one area that
Speaker 1: might continue to do okay, But I think it's I
Speaker 1: think I'd go with this mall cap tech rather than
Speaker 1: a large cap How do you shift to that? I mean,
Speaker 1: are you selling shares of Apple, Amazon and the rest
Speaker 1: of them here to do that? Or is that with
Speaker 1: new cash? I think i'd Uh. I think I definitely
Speaker 1: maybe UH entertained some selling tom. Uh there's you know,
Speaker 1: we've in our gap fund. We've put in uh E
Speaker 1: t F. You can get an e t F for
Speaker 1: the S and P six uh technology, UM, you know,
Speaker 1: sell your SMP five tech. UM. I think if you
Speaker 1: look at that tech, small cap tech and large cap
Speaker 1: tech have done just as well in this recovery since
Speaker 1: two thousand nine. They've had almost identical results, but they've
Speaker 1: had very different leadership. Here ads sometimes large as dominant,
Speaker 1: sometimes small. In the last couple of years, it's been large.
Speaker 1: They're sitting now on a relative basis at the bottom
Speaker 1: end of a trading range they've been in relative to
Speaker 1: the large cap tech back to two thousand two. They're
Speaker 1: they're trading right now at a slight discount p multiple,
Speaker 1: when they've normally traded on average at about an eighteen
Speaker 1: percent premium. They have a much higher long term growth
Speaker 1: rate estimate among SMP six technology than the SMP five
Speaker 1: technology has. They're certainly under owned, unloved, and basically not
Speaker 1: even known. You probably can't name many of them. I
Speaker 1: agree with that. So I mean, and lastly, I think
Speaker 1: that they're not in the They're not in the crosshairs
Speaker 1: of regulators. Um you know regularly, They're just not in
Speaker 1: the cross Here is a regularly and no one's looking
Speaker 1: at small camp Paul Sweeney, what's going to be the
Speaker 1: catalyst to jump these brilliant for digit stock four letter
Speaker 1: stocks and Jim is talking about it, Yeah, it's I
Speaker 1: think it's, you know, some the search for top line growth,
Speaker 1: which is something you always look forward. Tom. I think
Speaker 1: top line growth technology still has it and lots of
Speaker 1: pockets as we do a five G upgrade as the
Speaker 1: cloud continues to grow. Jimmy, I'm interested in your comments
Speaker 1: about emerging markets. Tom and I are hearing more and
Speaker 1: more about emerging market as potential opportunity for you as
Speaker 1: it driven more by maybe a moderating trade tensions globally
Speaker 1: or lower rates or kind of stabilizing economy. What's kind
Speaker 1: of driving your thoughts about emerging markets I think the
Speaker 1: biggest thing is UM is a revival in growth. I mean,
Speaker 1: you're starting to see the O E c D leading
Speaker 1: economic indicator for the global economy just turned up in
Speaker 1: the last two months for the first time since the
Speaker 1: end of two thousand seventeen. The Westpac Global Economic Surprise
Speaker 1: INDEXES has risen dramatically in the last few months. I
Speaker 1: think we're starting to see signs all across the globe
Speaker 1: of a recovery. Every time in this recovery since oh
Speaker 1: nine that you've had a bouncing global growth. Emerging markets
Speaker 1: have outperformed, and I think they will again. They tend
Speaker 1: to be more leveraged to economic acceleration than is the
Speaker 1: service based, tech based United States economy, for example. But
Speaker 1: in addition to that, UM, I do think that you know,
Speaker 1: we're just juice in the heck out of uh more
Speaker 1: cyclical manufacturing, other areas with incredibly low rates. With quantitative
Speaker 1: with physical students, I think it's gonna gonna work. I
Speaker 1: also expect the dollar to go down, Paul Um. I've
Speaker 1: been trying. I thought that last year. It didn't work.
Speaker 1: I'm gonna try it again. And if the dollar does
Speaker 1: go down, that's gonna boost some of those returns as well. Jim,
Speaker 1: thank you so much, greatly appreciated with LUFAD group. Jim
Speaker 1: Pauls enjoyed. H I've been waiting, waiting, waiting, Paults. We
Speaker 1: need to speak to Mr Shark this. You know, hear
Speaker 1: me folks talk about granular research reports. He is the
Speaker 1: king of granular. He knows which valve out in Kansas
Speaker 1: on which pipeline only has three bolts and not four bolts.
Speaker 1: And it's Stephen. I'm gonna start with a sixty question.
Speaker 1: Is the United States of America energy independent? Yeah? You know,
Speaker 1: I keep on hearing that, especially in regard to the
Speaker 1: recent geo political headlines, and that somehow the United States
Speaker 1: is inoculated. Uh, you know what, Tom, some weeks we are,
Speaker 1: some weeks we aren't. So if I can say some
Speaker 1: weeks we aren't energy independent, you know what, we're not
Speaker 1: energy independent. We have to keep in mind that we
Speaker 1: still import a considerable amount three to four million barrels
Speaker 1: of crude oil a day. This is very normal. Crude
Speaker 1: oil is not a homogeneous commodity. It depends on where
Speaker 1: you're what part of the world you're taking it out
Speaker 1: of the ground. So It depends on what kind of
Speaker 1: oil your refinery burns. Some of our refineries can burn
Speaker 1: the oil that we do produce. Some of our refineries
Speaker 1: have to buy oil outside the United States to keep
Speaker 1: the refineries running. We have a balance market. But no,
Speaker 1: we are not quote unquote energy independent if we cannot
Speaker 1: put up a wall and not allow any oil to
Speaker 1: come into this country. And you've got you know, he's
Speaker 1: got a million charts folks from the weather maps and
Speaker 1: all that out to actually hard your carbon stuff in
Speaker 1: your upper left corner. You slam it with employment in
Speaker 1: the Marcelas shale area. Where is that geographical in the
Speaker 1: United States? Is that Manhattan or is that Bronx? Exactly,
Speaker 1: it's a little west of the Bronx. So so we're
Speaker 1: talking north central Pennsylvania Susquehanna County, and then western Pennsylvania,
Speaker 1: um Washington County, and it extends over across the border
Speaker 1: into Ohio and then West Virginia. Is so considerable amount.
Speaker 1: And in my report, tom My concern here, of course
Speaker 1: is the fact that the United States is now in
Speaker 1: the industrial side of the economy is in recession. And
Speaker 1: that is to say, one day through the U. S. Economy,
Speaker 1: steel mills, factories, so forth. We're in recession right now. Uh.
Speaker 1: And so if you've got lower demand for by industrial,
Speaker 1: you have lower demand for oil. And we do have
Speaker 1: loyal demand for oil and gas and sorts of energy.
Speaker 1: So my concern living in the state of Pennsylvania, what
Speaker 1: is this doing to the employment situation to some of
Speaker 1: the really hard hit areas in the rust belt that
Speaker 1: are really benefiting now from shale production. And so far,
Speaker 1: so good, the employment picture still looks uh stable. But
Speaker 1: my concern over the next two years, as a considerable
Speaker 1: amount of debt come to do that we could uh,
Speaker 1: those counties could be in for a rough outing, uh
Speaker 1: throughout two Stephen, I'm looking at Brent crew here, sixty
Speaker 1: four dollars thirty cents a barrel, and it's just a
Speaker 1: weaker ten days ago when this thing was touching one
Speaker 1: and change. Is that delta simply the you know, risk
Speaker 1: premium coming out of Iran? Yeah, and yes, and it's
Speaker 1: just it's it's mind boggling to me. If you if
Speaker 1: if you told anyone ten years ago that you can
Speaker 1: attack a major oil facility in Saudi Arabia and three
Speaker 1: weeks later, oil prices would be lower than when they
Speaker 1: were the day after the attack, or that we could
Speaker 1: assassinating May your Iranian official in oil would be cheaper
Speaker 1: ten dollars cheaper today than it was right after that event.
Speaker 1: You would have said, you know, no one would have
Speaker 1: thought that possible. So the geopolitics have completely been exercised
Speaker 1: out of this market. There there is just this overwhelming
Speaker 1: nonchalance and it and it is mind boggling. And for
Speaker 1: me it is a concern because I do think the market,
Speaker 1: you know, on this group, think that we are energy independent.
Speaker 1: I do think that this market has lulled itself into
Speaker 1: this false sense of security that anything can happen and
Speaker 1: oil will continue to flow and prices will continue to
Speaker 1: remain attractive. And I think it's a dangerous game we're playing.
Speaker 1: And is that game predicated upon Steven just that maybe
Speaker 1: the markets belief that, you know, things are different now
Speaker 1: because of the US shale output. Is that a valid
Speaker 1: point you think or is that overplayed? You know it is.
Speaker 1: It is part of the equation we have to keep
Speaker 1: in mind when we're talking about consumer behavior les ticity
Speaker 1: of demand. You have two functions. You have you have
Speaker 1: the price shock, that will alter consumer behavior. But you
Speaker 1: also have to have a substitut to product, and up
Speaker 1: until five years ago, we didn't have a substitute product.
Speaker 1: So we do now have substitutes onto the market. And
Speaker 1: of course I'm talking about e vs, either full evs
Speaker 1: or a plug in hybrids such as the short household
Speaker 1: has one. So you're you're an energy guy. I know,
Speaker 1: I know, and and and my energy consumption has has been,
Speaker 1: my oil consumption has been is a fraction of what
Speaker 1: it was three years ago. And you know what that
Speaker 1: is oil demand that's never coming back to the market.
Speaker 1: So every time you see a Prius or a Tesla
Speaker 1: or Audi e tron, now that's the demand that's never
Speaker 1: coming back onto the market. So yeah, that that does
Speaker 1: have a big impact in the long term, Steve, nobody cares.
Speaker 1: What we do care about is the back end to
Speaker 1: your reports. Stephen Short, You've got the famous T s
Speaker 1: R Weather demand re gap. Come on, it's dooming gloom.
Speaker 1: You've got the coldest part of the nation is directly
Speaker 1: over Biscuit in New Jersey. We go to John Tucker,
Speaker 1: John Tucker, when it really gets cold in New Jersey,
Speaker 1: do you see like ice on the beach. Oh no,
Speaker 1: will you see you certainly do see ice where it's
Speaker 1: a an amalgam of saltwater. Yeah, st you got the
Speaker 1: you got New England in the North Atlantic States in
Speaker 1: one chart gloomy cold, and then you got the entire
Speaker 1: half of the nation gloomy cold. How cold is cold?
Speaker 1: You know cold and cold? You know anything? You know above,
Speaker 1: you know sustained tempts below freezing, you know in my estimate.
Speaker 1: So do you remember we're talking about in New Jersey,
Speaker 1: Remember that poll of vortex in the fourteen win there
Speaker 1: you you had icebergs coming ashore on Martha's vineyard. You've
Speaker 1: had the ocean almost freezing, and salt water for salwader freeze.
Speaker 1: We're talking about temperatures blowed water, temperatures blow twenty degrees.
Speaker 1: That is cold. And what's crazy about this guy's is
Speaker 1: that we do have this cold finally now in the forecast.
Speaker 1: And the one commodity that normally responds to cold weather
Speaker 1: is natural gas because we heat our homes in our
Speaker 1: busy This is with natural gas. And guess what natural
Speaker 1: gas is going in the complete opposite direction. Uh. And
Speaker 1: this is a function of one even though you do
Speaker 1: have the weather demand? What don't you have? My concern
Speaker 1: we have an industrial recession, so you don't have that
Speaker 1: industrial side that is really keeping a lid on natural
Speaker 1: gas prices. So it's it's interesting. So how about another
Speaker 1: consumer facing energy gasoline? Is it lower for longer just
Speaker 1: at the pump? I do believe. So I think we
Speaker 1: we we we've settled into um this area where and
Speaker 1: we kind of look at the options markets and the
Speaker 1: option markets. You always want to look at the option
Speaker 1: markets because this is the insurance market. These are the
Speaker 1: guys who are signing a risk of how high or
Speaker 1: how low prices will go out into the future, and
Speaker 1: then they're going to sell you an insurance policy that
Speaker 1: that doesn't happen. And what we've seen with the option
Speaker 1: markets through the first six months of this year, the
Speaker 1: option writers, the guys selling these options, are telling you
Speaker 1: that they think the ceiling in this market is between
Speaker 1: sixty three and sixty six dollars. This is w T
Speaker 1: I and the bottom of the market is between fifty
Speaker 1: five and fifty three. And so when we run our
Speaker 1: quantitative models, our money Collar Carlo simulations, it all kind
Speaker 1: of dovetails right into that range. So if we're you're
Speaker 1: looking at low fifties on the up to the midst sixties,
Speaker 1: that is stability at the pump. And that's a good
Speaker 1: thing because most producers can make money with oil in
Speaker 1: that mid sixty dollar range, and most consumers oil consumers
Speaker 1: can certainly afford it at the pump. Steven Short, thank
Speaker 1: you so much, greatly appreciated with the Short group with
Speaker 1: the Shorking bord uh this morning. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keane before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio.