WEBVTT - Surveillance: Yield Values with Hornby 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.800 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.760 and of course on the Bloomberg terminal. We're gonna get 0:00:29.760 --> 0:00:31.800 a brief down. It has been very visible. Lisa Hornby 0:00:31.880 --> 0:00:34.960 joins us out of the US multisector fixed income at 0:00:35.080 --> 0:00:37.960 Schroeder's and and Lisa, I really want to go to 0:00:38.360 --> 0:00:42.159 a general sentence buried in your note. The value was 0:00:42.240 --> 0:00:45.519 there for a decade in bills, notes and bonds. The 0:00:45.600 --> 0:00:51.960 values extraordinary discussed that why is price cheap in fixed income? Well, 0:00:52.159 --> 0:00:54.080 to be fair, we wrote that note about four or 0:00:54.080 --> 0:00:59.840 five weeks ago. But you know, when we look at 0:01:00.000 --> 0:01:03.320 on yields today and the longer term, over the longer term, 0:01:03.440 --> 0:01:06.199 there is much better value than there has been certainly 0:01:06.200 --> 0:01:08.240 any time in the past decade. And in fact, if 0:01:08.240 --> 0:01:10.480 you look back even going back twenty years, where at 0:01:10.480 --> 0:01:15.200 the sort of top percentile or so, and so you know, 0:01:15.280 --> 0:01:17.840 in our view, the first six seven months of this 0:01:17.959 --> 0:01:20.640 year have been quite painful in return space, but when 0:01:20.680 --> 0:01:23.600 you look forward, we've now set the landscape for much 0:01:23.720 --> 0:01:26.640 better returns. We actually have income in fixed income now 0:01:26.680 --> 0:01:28.680 for the first time in a while. We couldn't make 0:01:28.720 --> 0:01:32.120 that case a year ago. Lisa spreads of tit and aggressively. 0:01:32.360 --> 0:01:34.200 You've seen that we've gone from close to six hundred 0:01:34.200 --> 0:01:38.240 basis points on high yield to threatening to break four hundred. Lisa, 0:01:38.240 --> 0:01:40.160 can you help me understand just dissect that runny for 0:01:40.319 --> 0:01:42.280 us when that strength has come from? Is that an 0:01:42.360 --> 0:01:44.800 up and quality trade? Is everything? What's happened to here? 0:01:45.760 --> 0:01:47.440 I think it's I think it's a few things. I 0:01:47.480 --> 0:01:51.600 think the main one for us actually is that people 0:01:51.640 --> 0:01:55.720 have a bit more certainty in the rates volatility scenario. 0:01:56.280 --> 0:01:59.200 And what I mean by that is, I think you 0:01:59.240 --> 0:02:01.680 went back through four months ago, people didn't know where 0:02:01.680 --> 0:02:04.160 the terminal rate belonged. I mean you heard strategists talking 0:02:04.200 --> 0:02:06.600 three four or five six percent, to mean, there were 0:02:06.640 --> 0:02:09.440 there were lots of expectations out There are lots of 0:02:10.080 --> 0:02:14.560 various scenarios, and that led to extraordinary high rates volatility, 0:02:14.560 --> 0:02:17.560 and of course the the subsequent impact on credit spreads 0:02:17.560 --> 0:02:19.720 and and equity markets. Because if you can't price the 0:02:19.760 --> 0:02:22.840 risk free rate, how can you price everything else? And 0:02:22.880 --> 0:02:25.280 I think what happened was not only did sentiment get 0:02:25.320 --> 0:02:28.040 so poor that positioning work perhaps a bit offside, but 0:02:28.120 --> 0:02:30.120 what happened was the FED was perceived to do a 0:02:30.160 --> 0:02:32.680 slight pivot and show that they are willing at some 0:02:32.720 --> 0:02:35.840 point to slow the pace down UM, and that they 0:02:35.840 --> 0:02:38.360 think that they're getting fairly close to you know, perhaps 0:02:38.600 --> 0:02:41.280 they've perhaps a neutral rate, you know, over long term. 0:02:41.480 --> 0:02:44.320 But UM, I think people got comfort in the fact 0:02:44.360 --> 0:02:46.519 that the terminal rate is probably not five or six percent, 0:02:46.560 --> 0:02:48.480 it's probably three or four percent. But at Lisa, the 0:02:48.480 --> 0:02:51.480 FED is said, we haven't pivoted, no pivots going on here, 0:02:51.720 --> 0:02:53.919 and basically we're expecting that to hear that in the minutes. 0:02:54.240 --> 0:02:56.519 Is that going to reverse some of the spread tightening 0:02:56.520 --> 0:02:59.840 that we've seen. I think it will. UM. I think 0:02:59.840 --> 0:03:02.680 that the market narrative shifted a bit and that lower 0:03:02.800 --> 0:03:06.960 vowel regime is positive for risk assets, and especially it's 0:03:07.000 --> 0:03:10.359 more positive when sentiment had gone so far offside. I mean, 0:03:10.360 --> 0:03:12.160 we looked at that, we look at that Credit Swiss 0:03:12.160 --> 0:03:16.320 panic Euphoria index. It was negative five panic for for 0:03:16.840 --> 0:03:20.040 you know, months, almost um. Now it's back actually in 0:03:20.080 --> 0:03:23.239 positive territory, So there was a massive swing in sentiment. 0:03:23.560 --> 0:03:26.760 I think that coupled with that perception that the FED 0:03:27.680 --> 0:03:31.320 became a bit more perhaps stablished, led to the rally 0:03:31.360 --> 0:03:33.760 that we've seen. To your point, Lisa, in our view, 0:03:33.760 --> 0:03:36.040 this is a fade. I don't think that the I 0:03:36.080 --> 0:03:38.520 don't think the outcome that the market is painted, which 0:03:38.600 --> 0:03:40.640 is one if you know, you look at what's priced 0:03:40.640 --> 0:03:45.200 in the yield curve is invertus points to a recession. Um. 0:03:45.440 --> 0:03:47.440 You look at what's priced into FED funds rates, it's 0:03:47.520 --> 0:03:51.280 it's basically the FED stops in February or March hiking 0:03:51.320 --> 0:03:53.880 and they basically do an out about face and start 0:03:54.120 --> 0:03:57.440 cutting rights in in in the summertime. I think that's 0:03:57.480 --> 0:04:00.360 a that's a fairly unlikely scenario unless there's a really 0:04:00.400 --> 0:04:03.400 big downturn, which there could be. But then should risk 0:04:03.440 --> 0:04:06.080 assets be priced the way that they are today, Lisa, 0:04:06.200 --> 0:04:09.080 Our bond markets as well as the FED all just 0:04:09.280 --> 0:04:15.280 trading and operating around an oil market that's influx um. 0:04:15.320 --> 0:04:17.720 I think oil is one part of it. Certainly, that's 0:04:17.760 --> 0:04:19.960 you know, that's going to lead to the headline inflation 0:04:20.279 --> 0:04:22.920 sort of gyrations, and you know, oil came off and 0:04:22.920 --> 0:04:25.760 and so we saw a big, big drop down and 0:04:25.880 --> 0:04:28.560 in cp I headline CPI. But I think core inflation 0:04:28.640 --> 0:04:31.039 is more important, um and and that's really where the 0:04:31.080 --> 0:04:33.640 story is. And to us that's a bit more concerning. 0:04:33.680 --> 0:04:36.480 You know, yes, there was maybe a little bit of moderation, 0:04:36.960 --> 0:04:40.080 but the sticky components of core inflation are still running 0:04:40.160 --> 0:04:44.279 north of five five and so to us, that's the 0:04:44.440 --> 0:04:47.279 that's the real challenge. Yes, oil will will have puts 0:04:47.279 --> 0:04:50.440 and takes that will drive headline, but you gotta get 0:04:50.440 --> 0:04:52.760 core inflation down to more reasonable levels. And I think 0:04:52.760 --> 0:04:55.080 that's what the FED is focused on. LESA. Just listening 0:04:55.120 --> 0:04:57.760 to that final common there, that just sounds like you 0:04:57.800 --> 0:05:00.760 think this debate over terminal rights own result that it's 0:05:00.760 --> 0:05:03.159 too ready to get ahead of the story. I think 0:05:03.160 --> 0:05:07.160 it's too early to be discounting FED cuts. Certainly, um, 0:05:07.200 --> 0:05:09.560 I think it's too early to be discounting the FED 0:05:09.640 --> 0:05:12.560 has has pivoted. I think that's that's not not done yet. 0:05:13.320 --> 0:05:15.440 You know, I do think that they probably moderate their 0:05:15.480 --> 0:05:18.600 pace in September to fifty probably, you know, they could 0:05:18.640 --> 0:05:20.760 do a couple of fifties, They could do a couple 0:05:20.760 --> 0:05:24.640 of I don't think the five or six percent story 0:05:24.720 --> 0:05:27.240 is the one that you know, people were fearful of 0:05:27.279 --> 0:05:28.480 at the very front of the year. I don't think 0:05:28.480 --> 0:05:31.720 we're getting there, But I think the market is pricing 0:05:31.720 --> 0:05:36.240 in this very uh specific outcome where we head into 0:05:36.279 --> 0:05:39.760 a very moderate or mild recession. The FED is able 0:05:39.800 --> 0:05:42.760 to stop hiking and then start cutting, and that just 0:05:42.800 --> 0:05:47.440 seems unlikely. Historically, they don't cut when inflation is at 0:05:47.480 --> 0:05:51.720 elevated levels unless growth is really really bad. Employment is 0:05:51.800 --> 0:05:54.160 much higher, unemployment excuse me, it's much higher than where 0:05:54.160 --> 0:05:57.400 we are today. So you know, I think the markets 0:05:57.880 --> 0:06:00.719 is getting a little too excited right now to be 0:06:00.839 --> 0:06:03.360 to be you know, I've always called that Lisa a 0:06:03.360 --> 0:06:06.200 bedtime story. To have equity market balls sleep well at night, 0:06:06.560 --> 0:06:08.600 and that's what that is. Right now, Lisa won't be there. 0:06:08.960 --> 0:06:15.800 Shoulders Kitchen ex joined us now chief ex Strategistics Sock 0:06:15.880 --> 0:06:18.400 gen K. The first line in your note this morning 0:06:18.640 --> 0:06:21.120 the markets listening to the Fed and ignoring them or 0:06:21.240 --> 0:06:25.240 just not listening, which one is it? I think that 0:06:26.800 --> 0:06:28.880 I think they're choosing not to listen. I'm sure markets 0:06:28.920 --> 0:06:30.640 are listening to the Fed, but they're not really hearing 0:06:30.720 --> 0:06:34.360 the message, or you know, there's a there's a disconnect 0:06:34.480 --> 0:06:37.880 between some of the kind of optimism that a little 0:06:37.880 --> 0:06:39.880 bit less inflation means we'll get less from the Fed 0:06:40.200 --> 0:06:43.760 and a fad that's looking at high inflation anyway, I mean, way, way, 0:06:43.800 --> 0:06:46.680 way too high and a labor market which you know 0:06:47.040 --> 0:06:50.720 is just incredibly tight now, and so they really have 0:06:51.240 --> 0:06:54.360 nowhere to go. And I will be surprised if we 0:06:54.400 --> 0:06:56.599 don't end up pricing a four percent FED funds peak 0:06:56.640 --> 0:06:59.000 into this market before we've done over the next few weeks, 0:06:59.080 --> 0:07:02.160 because it seems to me that the message from the 0:07:02.240 --> 0:07:06.520 Fed is it cannot soften at all at this point. Kid, 0:07:06.600 --> 0:07:09.920 what is the message of strong Swiss Frank and particularly 0:07:09.960 --> 0:07:13.720 Euroswissy breaking through point nine seven to point nine six? 0:07:13.840 --> 0:07:16.040 What is the signal of that sticking out like a 0:07:16.120 --> 0:07:19.440 sore thumb on a Monday morning. Um, it tells you 0:07:19.480 --> 0:07:21.080 a little bit about risk conversion. I mean, it tells 0:07:21.120 --> 0:07:23.160 you something about the fight. But the Swiss decided that 0:07:23.280 --> 0:07:26.240 they wanted to get rates backed in depositive territory if 0:07:26.240 --> 0:07:28.120 they've ever got a chance, and that they've got some 0:07:28.200 --> 0:07:31.040 intuation that they need to fight. Uh, and if they 0:07:31.080 --> 0:07:33.920 have to sacrifice all attempts to keep the currency down 0:07:34.000 --> 0:07:37.320 in the process. It's fine because dollar Swiss isn't the problem, 0:07:37.640 --> 0:07:40.440 so so domestically you can see what they're doing. But yeah, 0:07:40.560 --> 0:07:42.840 I mean, it's an extension of the China story from 0:07:42.880 --> 0:07:45.600 this morning that says the US economy might still be 0:07:45.720 --> 0:07:47.360 doing well so long as we don't look at the 0:07:47.440 --> 0:07:50.400 yield curve and don't worry about the the things that 0:07:50.520 --> 0:07:53.120 don't don't jell well with yours economy. But if we 0:07:53.160 --> 0:07:54.680 look at the rest of the world, there's just a 0:07:54.760 --> 0:07:57.520 world of trouble out there. Kid. You're talking about how 0:07:57.560 --> 0:07:59.840 perhaps this market is not listening to the federals or 0:08:00.080 --> 0:08:02.760 and I wonder in this quiet summer week, whether Wednesday 0:08:02.800 --> 0:08:05.280 will be a pivotal day in terms of FED meeting minutes, 0:08:05.280 --> 0:08:08.480 whether they try to signal, hey, wake up, four percent 0:08:08.600 --> 0:08:11.000 FED funds rate is actually a reality. Do you believe 0:08:11.040 --> 0:08:12.880 that this will be a catalyst for some sort of 0:08:12.960 --> 0:08:16.040 dollar strength, for more market disruption As people kind of 0:08:16.360 --> 0:08:20.360 start to hear whij Powell was saying, hard to know 0:08:20.520 --> 0:08:22.120 for sure, because I think I think what the you know, 0:08:22.160 --> 0:08:24.360 I think I think the last FMC meeting was about 0:08:24.440 --> 0:08:28.080 stepping away from excessive forward guidance. So I don't know 0:08:28.200 --> 0:08:30.800 if they want to come back and steer us too hot. 0:08:30.960 --> 0:08:34.240 I think Jackson holl is a different story. But but 0:08:34.320 --> 0:08:36.959 I think they have a they have a problem with 0:08:37.160 --> 0:08:40.000 with with the degree of over precise forward guidance we've 0:08:40.000 --> 0:08:43.920 had from central banks in a very complicated and chaotic 0:08:44.000 --> 0:08:46.600 global economy, it just doesn't make sense. They should take 0:08:46.640 --> 0:08:48.800 the fact, you know, the facts as they are when 0:08:48.840 --> 0:08:50.679 they get them and moved. They should have hiked in 0:08:50.800 --> 0:08:53.079 June last year. You know, they then so on and 0:08:53.160 --> 0:08:56.600 so forth. So I would I would be a little 0:08:56.600 --> 0:08:58.600 bit depressed if I thought that they were still using 0:08:58.679 --> 0:09:02.320 FMC minutes to mike a manager expectations. UM, I would 0:09:02.360 --> 0:09:05.920 be more encouraged if they came out having seen that, 0:09:06.040 --> 0:09:08.160 having seen the peril data, and having seen everything that 0:09:08.200 --> 0:09:11.199 we've seen since this month, if they came in and 0:09:11.280 --> 0:09:13.959 Jackson hole and they don't say, look, you know, we 0:09:14.200 --> 0:09:18.280 have to get inflation back in its box, and we 0:09:18.360 --> 0:09:21.000 could only do that by putting some slack into the 0:09:21.080 --> 0:09:23.800 opor market and find out contradictions just keep on easing. 0:09:24.040 --> 0:09:26.319 And that's been problematic. Lisa. I was reading through the 0:09:26.400 --> 0:09:28.719 notes last week and pretty much every single note, so 0:09:28.840 --> 0:09:30.560 the same thing. It looked like to me at least, 0:09:30.600 --> 0:09:34.319 that we were equating peak inflation, Lisa, with peak FED hawkishness. 0:09:34.520 --> 0:09:36.360 I'm not sure whether you can do that. And a 0:09:36.440 --> 0:09:38.400 lot of people came out and basically said the FED 0:09:38.480 --> 0:09:40.600 put is still a FED call, and that the more 0:09:40.679 --> 0:09:42.840 that starts rally, the more that the FED is going 0:09:42.880 --> 0:09:45.800 to have to step in and do something to to 0:09:46.160 --> 0:09:48.200 cause this to reverse. And how much is this going 0:09:48.240 --> 0:09:49.959 to become the reality and the talking point of the 0:09:50.000 --> 0:09:51.760 next few weeks a kid, would you summarize it as 0:09:51.800 --> 0:09:54.439 follows as Lisa just called it, Is this a FED 0:09:54.480 --> 0:09:56.360 call now? And does this FED have to respond to 0:09:56.480 --> 0:09:58.640 this aggressive rally we've seen in this equity market, this 0:09:58.760 --> 0:10:02.439 aggressive tightening we've seen in credit spreads. I don't think that. 0:10:02.600 --> 0:10:05.079 I don't think that the market helps the FED. But 0:10:05.160 --> 0:10:08.960 the reality is that inflation that with the labor market 0:10:09.000 --> 0:10:11.800 where it is and wage growth where it is, as 0:10:11.840 --> 0:10:15.079 a result of that, inflation may drift lower over the 0:10:15.120 --> 0:10:18.920 course of the next six nine months, but they'll still 0:10:18.960 --> 0:10:21.679 have a problem because it's not going back under five 0:10:21.760 --> 0:10:25.079 percent easily from here. So you know, there's a two stage. 0:10:25.120 --> 0:10:27.520 So I think I think the Fed's messaging in sense 0:10:27.559 --> 0:10:30.120 of the fleas problem is the third's problem is they 0:10:30.160 --> 0:10:35.840 don't have a choice. The inflation mandate requires action, more action. 0:10:36.440 --> 0:10:38.480 The market does what it does. The concern is that 0:10:38.760 --> 0:10:40.880 as soon as the market things, they might have done enough. 0:10:41.679 --> 0:10:44.199 Um that that that that sort of look at it 0:10:44.240 --> 0:10:46.520 and you think, no, they just haven't, not until the 0:10:46.600 --> 0:10:49.240 data improved. A kid, just quickly, as an arsenal fan, 0:10:49.280 --> 0:10:51.600 did you enjoy two other London clubs just beating each 0:10:51.600 --> 0:10:55.040 other up for ninety minutes yesterday? It was good entertainment? 0:10:55.120 --> 0:11:04.120 Whatever else it? Kid? Juicus? So kid, thank you. Right 0:11:04.160 --> 0:11:05.959 now we're gonna rip up the script. We can do 0:11:06.080 --> 0:11:09.880 this with William Lee, his chief economist at Milk And Institute. 0:11:09.920 --> 0:11:12.280 We're going to talk to him about the Empire statistics, 0:11:12.360 --> 0:11:17.000 but said, let's take advantage of his encyclopedic knowledge of 0:11:17.040 --> 0:11:20.320 the Pacific rim and the dynamics of China. Of course, 0:11:20.480 --> 0:11:23.320 Dr Lee has all of the efforts he's done at 0:11:23.320 --> 0:11:26.760 the International Monetary Fund over the years and City Group, 0:11:26.800 --> 0:11:29.640 and of course has a shingle out at the Milk 0:11:29.720 --> 0:11:33.040 And Institute. Right now, Billy, I want to go to 0:11:33.160 --> 0:11:37.000 the Party Congress. Right now, Elizabeth Economy of the Council 0:11:37.040 --> 0:11:40.760 on Foreign Relations, in her beautiful book The World according 0:11:40.800 --> 0:11:44.880 to China has the view of China looking out. How 0:11:44.960 --> 0:11:48.719 does Beijing and their leader in Beijing, how does he 0:11:48.800 --> 0:11:52.480 look within? Giving the grim data of the day, Actually, 0:11:52.480 --> 0:11:56.040 President she has made a major campaign of his to 0:11:56.160 --> 0:11:59.520 start looking inward. It's called the deal circulation strategy, where 0:11:59.720 --> 0:12:02.480 he wants to have the domestic economy become the primary 0:12:02.520 --> 0:12:05.920 focus for China and the source of growth going forward. Unfortunately, 0:12:06.400 --> 0:12:09.720 so much as collapsed within China that the domestic economy 0:12:10.360 --> 0:12:12.640 is nowhere to be found, especially in the private sector, 0:12:12.720 --> 0:12:15.000 where the only store of wealth the middle class had. 0:12:15.040 --> 0:12:17.839 The property sector has completely collapsed, had about a year 0:12:17.960 --> 0:12:21.959 of declining real estate crisis. So so so right now 0:12:23.160 --> 0:12:25.040 the rest of the world is the only hope for China, 0:12:25.160 --> 0:12:27.520 and even that's collapsed because the latest data show the 0:12:27.559 --> 0:12:29.640 export numbers are are are are nowhere to be found. 0:12:29.720 --> 0:12:32.400 So China really has nothing to hang on too. Going 0:12:32.480 --> 0:12:39.359 into the Party commos, how does she Billy prosecute decisions, logistics, 0:12:39.960 --> 0:12:43.040 the process of it to Shanghai or to cheng Do. 0:12:43.360 --> 0:12:47.679 How does Beijing actually get the message out. You know, 0:12:48.400 --> 0:12:51.520 right now there's a tension between the center of the 0:12:51.640 --> 0:12:54.800 central government and the municipal governments because right now the 0:12:54.920 --> 0:12:57.680 only place for revival is to have the municipal governments 0:12:57.720 --> 0:13:00.280 go in there and do infrastructure building and just start 0:13:00.640 --> 0:13:04.760 pumping out fiscal policy. Unfortunately, every municipality out there is 0:13:04.840 --> 0:13:07.319 so indebted they can't do it. Uh. And so so 0:13:07.440 --> 0:13:09.880 the only thing that j Pick has to to have 0:13:10.080 --> 0:13:12.600 to save face going into the Party Congress in October 0:13:13.000 --> 0:13:15.280 is to have some prayer of saying we will have 0:13:15.440 --> 0:13:17.600 a revival in the second half of the year. These 0:13:17.679 --> 0:13:20.160 numbers today have put that to rest, and there's no 0:13:20.400 --> 0:13:24.439 chance for that. On top of that, uh, Speaker Pelosi 0:13:24.520 --> 0:13:26.480 has slapped him in the face, and the loss of 0:13:26.559 --> 0:13:28.800 face going into the Party Congress is gonna be something 0:13:28.800 --> 0:13:31.040 that's gonna be very hard for him to recover from. 0:13:31.240 --> 0:13:32.839 But we get to timeline in the moment. Just on 0:13:32.880 --> 0:13:36.240 the economy, are you describing a balance sheet recession in China? 0:13:38.120 --> 0:13:40.800 Balance sheet recession for short in the private sector because 0:13:40.920 --> 0:13:43.640 the only source of saving for the households has been 0:13:43.840 --> 0:13:46.839 real estate and the very volatile stock market. And so 0:13:47.080 --> 0:13:49.439 with the collapse of the real estate market and the 0:13:49.559 --> 0:13:53.320 health the huge youth unemployment. It's very hard for households 0:13:53.360 --> 0:13:55.800 to have a positive outlook for the future and start 0:13:55.840 --> 0:13:58.200 buying things like consumer durables, and and and and other 0:13:58.840 --> 0:14:02.360 other items. So so the balance sheet recession notion is 0:14:02.520 --> 0:14:05.240 very much in play at China. Now leaves money to 0:14:05.240 --> 0:14:07.440 your policy impotent, doesn't it. And I feel if that's 0:14:07.480 --> 0:14:08.760 the case, I'm just trying to work out where that 0:14:08.840 --> 0:14:10.760 leaves the global economy off the fact of this dynamic 0:14:10.800 --> 0:14:13.200 stating to bubble to the service just a little bit more. 0:14:14.040 --> 0:14:16.800 The only place monitored policy can have a play here 0:14:16.960 --> 0:14:20.000 would the regulatory policy to somehow ignore all of the 0:14:21.000 --> 0:14:23.440 holes that are in the real estate sector and say, okay, guys, 0:14:23.640 --> 0:14:25.960 go on and Bill, we're gonna backstop all of your 0:14:26.120 --> 0:14:28.720 your your bad debt and all of those empty apartments 0:14:28.720 --> 0:14:31.400 of yours. That's the only place Montory policy brow. It's 0:14:31.400 --> 0:14:33.800 the regulatory side, and China's doctor to be able to 0:14:33.840 --> 0:14:37.320 do that because the regulatory sector, the real estate sector 0:14:37.440 --> 0:14:39.600 is in such bad shape. So what are we looking at, Bill, 0:14:39.680 --> 0:14:43.200 in terms of GDP growth for China? I hear two 0:14:43.280 --> 0:14:46.040 handles going into the rest of the year. Uh, and 0:14:46.200 --> 0:14:48.280 so in order for China to get to his five 0:14:48.320 --> 0:14:50.240 and a half percent target has to have seven and 0:14:50.320 --> 0:14:52.040 eight percent for the rest of the year, and right 0:14:52.080 --> 0:14:54.800 now is exactly going to the opposite direction as the 0:14:54.840 --> 0:14:57.640 rest of the world economy. Factored that in the likelihood 0:14:57.720 --> 0:14:59.880 in your idea that you can see a two hand 0:15:00.000 --> 0:15:04.120 all for Chinese GDP growth. I I think that notion 0:15:04.160 --> 0:15:07.080 has gotten out, especially among my my friends who are 0:15:07.360 --> 0:15:10.280 China chief economists out there. They can't publish it because 0:15:10.440 --> 0:15:14.000 they may be banned from China, but I think the 0:15:14.160 --> 0:15:18.000 notion is among the among the investors of the world. Well, 0:15:18.120 --> 0:15:20.440 this may be temporary and the China will somehow recovered 0:15:20.440 --> 0:15:22.880 because it always has, but the structural problems I just 0:15:22.960 --> 0:15:25.360 pointed out are just so severe. I think there's gonna 0:15:25.360 --> 0:15:28.640 be a lot more work to be done for China 0:15:28.720 --> 0:15:31.920 to regain anywhere nearest investor status. What about the asset 0:15:32.000 --> 0:15:34.840 pricing though globally and we're just talking about the Empire 0:15:34.880 --> 0:15:39.400 Manufacturing survey severely disappointed. Biggest, second biggest job in this 0:15:39.600 --> 0:15:42.680 history of this index, The second biggest just all in 0:15:43.000 --> 0:15:45.320 level that we have ever seen in this index is history. 0:15:45.400 --> 0:15:48.640 How much how are we looking at a global recession 0:15:48.920 --> 0:15:52.640 really pitting off the slowtown in China. Well, manufacturing is 0:15:52.920 --> 0:15:56.240 really at the core of the globalization. That's the one 0:15:56.320 --> 0:15:59.920 sect that's most affected by globalization, and China in particular 0:16:00.040 --> 0:16:02.520 because it's been the next is the manufacturing So we 0:16:02.560 --> 0:16:05.040 would expect any kind of slowdown in China that affects 0:16:05.040 --> 0:16:08.040 the global supply chain to kill the manufacturing sector before 0:16:08.040 --> 0:16:09.880 anything else. And we have seen that in the data now, 0:16:10.080 --> 0:16:12.360 so that's not so surprising. What is going to be 0:16:12.440 --> 0:16:16.440 difficult with the how the rest of the economy work. 0:16:16.480 --> 0:16:19.360 Global economy will adapt its global supply chains in a 0:16:19.440 --> 0:16:21.760 way that it takes China out of the picture, or 0:16:21.760 --> 0:16:24.120 at least become less important part of the picture. But 0:16:24.360 --> 0:16:28.400 you said something moments ago i'll paraphrase that certain people 0:16:28.440 --> 0:16:30.400 can't publish things because they'll be thrown out the country 0:16:30.440 --> 0:16:32.800 now built. There's an element of truth in that in 0:16:32.880 --> 0:16:34.600 the minds of a lot of people. And I wonder 0:16:34.680 --> 0:16:36.800 if these things start to deteriate just a little bit more, 0:16:36.880 --> 0:16:39.760 Bill where I look for reliable data on what's actually 0:16:39.840 --> 0:16:43.680 happening in that economy. Well, I hate to say this, 0:16:43.800 --> 0:16:46.280 but my supply, my cell side colleagues are are kind 0:16:46.280 --> 0:16:48.480 of constrained. I'm lucky to be at Milton where I'm 0:16:48.520 --> 0:16:50.840 not constrained to say what I think. And I think 0:16:51.080 --> 0:16:54.080 it's going to be very difficult to find hard intelligence 0:16:54.160 --> 0:16:58.480 about China outside of private sources. That's tough. Bill. Thank you, 0:16:58.640 --> 0:17:05.240 bo Lee at the Milk and Institute on Oil. Ellen 0:17:05.320 --> 0:17:08.000 Wall joins senior fellow at the Atlantic Council and really 0:17:08.080 --> 0:17:10.480 quite good on particularly the mix of what's going on 0:17:11.080 --> 0:17:14.040 in Saudi Arabia. Ellen, thank you so much for joining 0:17:14.119 --> 0:17:16.720 us today. Should we get used to oil at eighty 0:17:16.840 --> 0:17:20.119 or ninety or are you with a school of thought 0:17:20.440 --> 0:17:23.919 that normal is much higher and we're just on borrowed 0:17:24.080 --> 0:17:28.560 time down here n suns and borrowed time. But I 0:17:28.680 --> 0:17:33.720 do think that for the current the current picture that yes, 0:17:34.600 --> 0:17:37.320 higher is definitely a new normal. And when you look 0:17:37.480 --> 0:17:40.520 at the changes that are going on in the US 0:17:40.640 --> 0:17:45.800 in terms of oil production and new regulations and different 0:17:46.480 --> 0:17:52.520 corporate outlooks towards increasing production, there's definitely a trend towards 0:17:53.000 --> 0:17:58.280 less dynamic responses to the market, um, higher costs in 0:17:58.440 --> 0:18:02.600 terms of production, uh, slower increases in production, and so 0:18:02.960 --> 0:18:05.480 I think we definitely could be looking at a somewhat 0:18:05.600 --> 0:18:10.080 higher basis in terms of oil, and as you've been mentioning, 0:18:10.119 --> 0:18:12.440 inflation also does play a role in that. And it 0:18:12.480 --> 0:18:13.800 can't just pick up on some of this and ask 0:18:13.880 --> 0:18:16.040 you how durable this decline is going to be. With 0:18:16.200 --> 0:18:18.720 south of four dollars a gallon for gas in this 0:18:18.840 --> 0:18:22.399 country right now, on average, we've seen numbers declined, decline, 0:18:22.400 --> 0:18:24.400 decline every single day going back to the middle of June. 0:18:24.400 --> 0:18:26.639 It's pretty impressive. STUF. Secondly, grand home over the weekend 0:18:26.680 --> 0:18:28.520 to see an and hoping it continues. Do you have 0:18:28.680 --> 0:18:31.880 that same feeling that it will continue? Well? I think 0:18:31.960 --> 0:18:35.680 that you also have to remember that seasonality is still 0:18:35.840 --> 0:18:39.879 a very important component in gasoline demand and gasoline prices, 0:18:40.040 --> 0:18:43.080 and generally around this time we do see a slight 0:18:43.160 --> 0:18:46.639 dip in demand. School is starting for large portions of 0:18:46.720 --> 0:18:50.080 the country, and um this summer driving season is coming 0:18:50.160 --> 0:18:53.040 to an end. But I think that um what will 0:18:53.080 --> 0:18:55.320 really give us a good sense of where things are 0:18:55.359 --> 0:18:58.880 headed in terms of gasoling prices and demand is as 0:18:58.960 --> 0:19:03.080 we hit the fall, as we hit September, when refineries 0:19:03.359 --> 0:19:06.080 have to go into their maintenance season, I think we'll 0:19:06.080 --> 0:19:09.200 get a good picture of whether demand is still strong, 0:19:09.320 --> 0:19:13.600 whether it's going to drop off because typically prices decline. 0:19:13.640 --> 0:19:17.120 But will refineries feel secure enough to even go offline 0:19:17.160 --> 0:19:19.720 to do maintenance or will they feel pressure to keep 0:19:19.880 --> 0:19:22.480 churning out more and more barrels and kind of put 0:19:22.600 --> 0:19:26.760 off needed maintenance, And that could be a significant factor 0:19:26.960 --> 0:19:29.480 for gasoline prices for the rest of the year. Hepic 0:19:29.560 --> 0:19:32.600 of a swing factor Ellen is COVID zero and China 0:19:32.800 --> 0:19:37.359 ending that after the National People's Congress later this year. Uh, 0:19:37.760 --> 0:19:40.760 that would be a huge deal if if China ended 0:19:40.880 --> 0:19:45.240 its COVID zero policy, because essentially the market is always 0:19:45.280 --> 0:19:48.600 kind of on edge. Is China going to shut down? Uh? 0:19:48.760 --> 0:19:51.800 Is this major city gonna shut down? What's demand going 0:19:51.840 --> 0:19:53.800 to look like out of China? And to some extent, 0:19:54.080 --> 0:19:56.479 you get a little bit of a sense when they 0:19:56.560 --> 0:20:00.320 issue their import quotas, especially for the independent refined reason, 0:20:00.400 --> 0:20:02.200 but how much oil they're going to be importing. But 0:20:02.600 --> 0:20:04.360 at the you know, at the stroke of a pen, 0:20:04.640 --> 0:20:08.080 they could basically crush domestic demand. And so I think 0:20:08.160 --> 0:20:10.880 that if they do get rid of this zero COVID policy, 0:20:11.480 --> 0:20:15.080 I think that that will be quite telling for the market, 0:20:15.160 --> 0:20:17.879 especially for the next year. Well, but how tight is 0:20:18.000 --> 0:20:20.560 production right now? How tight are supplies? And that's I 0:20:20.600 --> 0:20:23.480 guess the question that I have is how resilient is 0:20:23.560 --> 0:20:26.800 the market to a potential shock and demand one way 0:20:26.960 --> 0:20:29.639 or another. Right now we're seeing cooling demand. How low 0:20:29.680 --> 0:20:33.760 would those prices be if it weren't for that tightness. Yeah, 0:20:33.840 --> 0:20:37.159 I don't think. I think we We could definitely potentially 0:20:37.280 --> 0:20:40.040 see prices, you know, down in the sixties if it 0:20:40.119 --> 0:20:42.480 weren't for that tightness. But on the other hand, part 0:20:42.520 --> 0:20:45.280 of the tightness is what is causing prices to to 0:20:45.400 --> 0:20:47.560 cool down, the fact that they were so high because 0:20:47.640 --> 0:20:50.600