Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Ferrell and Lisa Abramowitz.
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Speaker 3: With us around the table, you've got a sneak peak
Speaker 3: of there. Sandrew Bors, Global Fixed Incomes CIO at PIMCO. Andrew,
Speaker 3: good morning, good to be here, thanks for ten year.
Speaker 3: Fantastic to be with you. Four thirty four on a
Speaker 3: ten year yield this morning. To build on what Lisa said,
Speaker 3: is this a moment in time, bye bye bye, lock
Speaker 3: it in before it goes away?
Speaker 4: Or can we live with this?
Speaker 5: So I think it looks pretty attractive. We're in the
Speaker 5: middle of our forum discussions which we had in London
Speaker 5: as well, actually, so we're still talking about this with
Speaker 5: the investor.
Speaker 6: It's a head start, but it looks it looks.
Speaker 5: Pretty attractive here if you have a high quality bond
Speaker 5: fund five six percent yield in US dollars with more
Speaker 5: credit kind of seven percent maybe seven and a half
Speaker 5: percent yield, This looks very attractive. Equities have done very
Speaker 5: well this year. Looking forward, you know, six and a
Speaker 5: half five and a half percent type yield for a
Speaker 5: bond fund looks very good to us.
Speaker 7: There are two points here. One is does this look
Speaker 7: attractive now? And the second is where is the next rate?
Speaker 7: Where does the move come from? Is it higher or
Speaker 7: is it lower? But two different discussions right how sticky
Speaker 7: this is going to be?
Speaker 8: How big is the.
Speaker 7: Argument right now? In some of these meetings at PIMCO.
Speaker 5: Well, I think you were talking about real yields and
Speaker 5: I was nodding. When you look at real yields and
Speaker 5: look at long term history, it's starting to look attractive. Here.
Speaker 5: We had this period after two thousand and eight quantity
Speaker 5: of easing and at all of that and depressed real yields.
Speaker 5: But you're now seeing real yields its attractive levels and
Speaker 5: nominal yields I was quoting before, look pretty good to us.
Speaker 5: You have you know, in the outlook, you have inflation
Speaker 5: still stubbornly high at the core level, improving much faster
Speaker 5: in the US compared with Europe. I think the jury
Speaker 5: is still out there, but then don't forget the recession risk.
Speaker 5: We have had very significant global tightening across the world,
Speaker 5: and yes the data has been better expected than expected,
Speaker 5: particularly in the US this year, but as we all know,
Speaker 5: these central bank tightening takes time to feed into the
Speaker 5: real economy. So looking forward, the jury still out on inflation,
Speaker 5: but that recession risk remains significant.
Speaker 2: Critical question for PIMCO, and it's not only the heritage
Speaker 2: of PIMPO from Bill and Muhammad forward. A great call
Speaker 2: you people made a number of years ago. You've got
Speaker 2: the advantage of the former Vince chairman, Richard Claired, I believe.
Speaker 1: Darkens the door.
Speaker 2: I can just see balls and clarity in a debate
Speaker 2: over where we're going to reset on our start, and
Speaker 2: almost on a global our start.
Speaker 1: Do you sense within all the.
Speaker 2: Great work you do, Andrew, that we're going to reset
Speaker 2: in a new rate regime, something that.
Speaker 1: We've never experienced before.
Speaker 5: So I think it's an interesting debate. Rich and I
Speaker 5: tend to agree, and on this point that as you
Speaker 5: look forward beyond this inflation episode, the cyclical rise in
Speaker 5: policy rates we've seen, there's good reasons to think that
Speaker 5: our star neutral rates are at the low levels that
Speaker 5: we've seen for the last several years. We'll see this
Speaker 5: in the fed's projections this week, but that the chances
Speaker 5: are the FED we'll also see two and a half
Speaker 5: percent is their long dot. So compare the four and
Speaker 5: a half percent for four point three percent four point
Speaker 5: four percent for the ten year treasury, or look at
Speaker 5: the forward rates and compare it with that that neutral anchor.
Speaker 5: We believe that anchor remains the correct way to do analysis,
Speaker 5: and then the long term outlook versus that then looks
Speaker 5: very attractive.
Speaker 2: I'd say, does the guard Heaven our start? Does you
Speaker 2: wait to have an our star? Dare I say, does
Speaker 2: Bailey have an our star?
Speaker 6: They all have their They all have the variations on this.
Speaker 5: I think, you know, the FED maybe is a bit
Speaker 5: happier to talk about it sometimes. But again, looking at
Speaker 5: bund yields now, even in Japan, you are getting too
Speaker 5: levels in terms of you know, the ten year yield
Speaker 5: where it's starting to look more interesting control for volatility
Speaker 5: return per unit of volatility, and it becomes a little
Speaker 5: bit once we get beyond the YCC, once we get
Speaker 5: beyond the yield curve, control. So if you think that
Speaker 5: you have that anchor, and we do, then look at
Speaker 5: your five year, five year forward rates to isolate the
Speaker 5: long term expectations beyond this central bank cycle, and you
Speaker 5: know that's the environment. When it's it's much easier to
Speaker 5: come in and be positive like I am today compared
Speaker 5: with the lows of the COVID period.
Speaker 4: We don't spend nearly enough time talking about this.
Speaker 3: How different this regime is to the regime of the
Speaker 3: last decade before the pandemic.
Speaker 4: How different is it for you and the team?
Speaker 3: What have you had to change just in terms of
Speaker 3: approach away from zero rates and QY forever towards potentially
Speaker 3: the Bank of Japan hike and interest rates the you
Speaker 3: see be going too levels. I never thought they'd get
Speaker 3: to I thought maybe they go back to zero, but
Speaker 3: here we are at four percent.
Speaker 5: How different is this view and the team? Well, I
Speaker 5: think it's very different. And I think as a bond
Speaker 5: manager you like to see these high yields at the
Speaker 5: front end of the curve. It becomes really interesting the
Speaker 5: relative value at the front end of the curve. You know,
Speaker 5: zero yields, Remember those something that hopefully we've consigned to history.
Speaker 5: I think one important thing looking forward different to the
Speaker 5: last ten years is uncertainty year round inflation. So we
Speaker 5: see inflation coming down towards central bank targets a little
Speaker 5: bit above, but coming down over the course of next year.
Speaker 5: But I think clearly there's much more uncertainty in the
Speaker 5: inflation picture for the last for the next few years
Speaker 5: compared with the last decade. And so back to the
Speaker 5: discussion before you should be getting term premium. You should
Speaker 5: be getting paid appropriate term premium for holding the ten
Speaker 5: year part of the curve. But again comparing our forward
Speaker 5: rates with our expectations for our start, it looks like
Speaker 5: you're getting fair compensation after a period when with quantitative
Speaker 5: easing and all these risk premiums, who are really compressed.
Speaker 7: What about in credit though, I mean, given the fact
Speaker 7: that you're looking at greater vulnerability to an oil price shock,
Speaker 7: or a unionization shock, or a technological shock, some of
Speaker 7: these things that become that much more important when you're
Speaker 7: cushion is that much smaller.
Speaker 5: So I think, I mean, I think the baseline for
Speaker 5: credit looks fine. I think credits should do well in
Speaker 5: an environment where you avoid the tails. Not just about
Speaker 5: recession but you know, real recession, not just a technical recess.
Speaker 5: And on the upside case, if inflation is coming back
Speaker 5: inter line with that fairly benign middle path, then credit
Speaker 5: should be fine. From our perspective, though we want to
Speaker 5: guard against the tails. And if we do get deeper
Speaker 5: than expected economic downturn, you know that's going to be
Speaker 5: painful in credit. So I think up in quality ig
Speaker 5: looks attractive versus high yield, avoid cuspier credits, avoid any
Speaker 5: kind of exposure to real default risk in what remains
Speaker 5: a really uncertain environment. It's not often you have these
Speaker 5: sorts of tightening cycles globally to such an extent. And
Speaker 5: then the final thing, there's lots of other stuff we
Speaker 5: can do in the world. US agency mortgages very very
Speaker 5: high quality instrument term, very attractive in terms of the valuation.
Speaker 5: So again, if you can get to the kind of
Speaker 5: five six percent type yields on core bonds, looks pretty.
Speaker 6: Good to us in terms of the next few years.
Speaker 3: Andrew always a privilege, thank you, sir, Andrew Ball, that
Speaker 3: of Pincott.
Speaker 1: What we're gonna do right now, this is really important.
Speaker 2: We're trying to piece together with a trip to London
Speaker 2: the credit conference will be doing on Thursday. We're really
Speaker 2: trying to piece together twenty twenty four. They're the political
Speaker 2: conventions in America and that.
Speaker 1: But front center for Bramo, John.
Speaker 2: And myself is we need tickets to the Paris Olympics.
Speaker 2: The only reason he's with us now with AXA Investments Paris,
Speaker 2: Gilmoek is with us here give us an update right now,
Speaker 2: mister McCraw axe in the Paris boom you're going to
Speaker 2: see can Paris get any more boomier than it is now?
Speaker 2: Off the Olympics next summer?
Speaker 1: Right, it's looking good.
Speaker 9: I guess toysm is helping it lost So yeah, I
Speaker 9: mean the city's having a good run. Gus is going
Speaker 9: to continue to tell the Olympics. Now, the country around
Speaker 9: Paris it can be a bit more complicated. We have
Speaker 9: good first half of the year. Things are starting to
Speaker 9: look a bit more complicated. So there's a lot of
Speaker 9: positivity at the moment in France because if you compare
Speaker 9: yourself to Germany, things are so much better. Even the
Speaker 9: German stellar staff now, so it's quite unusual. But actually
Speaker 9: if you look at the latest business confidence survey, it's
Speaker 9: not as bad as in Germany, but it's also heading south.
Speaker 2: This is really important because I think to our listeners
Speaker 2: and viewers, particularly in America, when we say we went
Speaker 2: to France, we went to three R and D small
Speaker 2: wrapped around Notre Dame and the wonderful repair of that cathedral.
Speaker 2: We don't have a real picture here of the greater
Speaker 2: European economy. We just see the boom of European tourism.
Speaker 2: Separate the European tourism from your caution and the rest
Speaker 2: of the European economy.
Speaker 9: Yeah, I mean the definitely the weakness in the euro
Speaker 9: is helping from the point of view, so tharism is
Speaker 9: actually a function of of that weakness, the rebound in
Speaker 9: the US, I think the appetite for traveling to Europe
Speaker 9: at the moment, but even in the most tourism sensitive
Speaker 9: countries in the year Zone, it's what fifteen to twenty
Speaker 9: percent of GDP at most, and the rest is, you know,
Speaker 9: the usual stuff that is dependent on either world demand
Speaker 9: in the generic sense of the meaning, or on constant spending.
Speaker 9: And constant spending in France, for instance, has been contracting
Speaker 9: for two quarters in a row. So we have to
Speaker 9: be yes a bit broader in our assessment situation.
Speaker 4: It takes us to the ECB.
Speaker 3: So let's be slightly provocative in this question three shate
Speaker 3: two thousand and eight three twenty eleven. Should we add
Speaker 3: leguard September twenty twenty three to those.
Speaker 9: Well, they're trying hard not to fall in that trap,
Speaker 9: because actually, if you compare this with either weight and
Speaker 9: with twenty eleven, there was not a great sense of
Speaker 9: quotient at the time when they actually hike, and there
Speaker 9: was a sort of self righteousness. So we are definitely
Speaker 9: delivering what we need to. I'm probably going to continue,
Speaker 9: whereas this time it feels very much like it's the
Speaker 9: last hike that we probably need, maybe for technical reasons
Speaker 9: internally to get the hawks on board, also because I
Speaker 9: think it's true there is a resilience of inflation which
Speaker 9: is more tangible in Europe than it is in the US.
Speaker 4: But the entire.
Speaker 9: Bloody language from from Crinstila Gal last week was about, yes,
Speaker 9: they're now selling the long for the high for long sorry,
Speaker 9: but in terms of further hikes, we've probably done. And
Speaker 9: I think yes, what happened in a way to what
Speaker 9: happened in twenty eleven must be on their minds, and
Speaker 9: even the Hawks are getting a bit less vocal.
Speaker 4: I would say I've noticed the same thing.
Speaker 3: It begs the question about what we can learn from
Speaker 3: the European experience on the other side of the Atlantic.
Speaker 3: Do you think the rounding lessons you see Germany essentially
Speaker 3: go into recession and inflation is still a problem. Growth
Speaker 3: in Europe essentially stagnate and inflation is still a problem.
Speaker 3: It's softer growth the cure for what we're experiencing at
Speaker 3: the moment.
Speaker 9: Well, I know that lots of economists, clearly myself have
Speaker 9: been wrong on that for the last year. But history
Speaker 9: would tell you that it's very, very very hard to
Speaker 9: get this inflation without proper pain in the reread economy,
Speaker 9: especially when inflation is no longer about exhausgenous forces and
Speaker 9: so about your domestic forces. So as long as proved otherwise,
Speaker 9: I would say that what's happening in the Europe is
Speaker 9: probably a lesson for what might happen in the US,
Speaker 9: even if, yes, the US resilience is amazing at the moment,
Speaker 9: I guess a big difference between between the two is
Speaker 9: thus there's I think in Germany a more structural issue,
Speaker 9: which is coming back to buy them at the moment,
Speaker 9: which is to some extent disconnected from military policy. There
Speaker 9: would be probably in a softer patch anyway that is dragging.
Speaker 4: The years and average down.
Speaker 9: But you want to heal inflation, especially when it started
Speaker 9: to get entrenched in wage negotiations, you probably need to
Speaker 9: engineer some sort of softening of demand. There is not
Speaker 9: a lot in the textbook that would tell you otherwise.
Speaker 7: Ispletely different than the US when it comes to how
Speaker 7: well it can withstand the oil shock, or just perhaps
Speaker 7: the oil price is going back to something more normal
Speaker 7: on an inflation adjusted basis.
Speaker 9: Well, our big problem for the last two years has
Speaker 9: been gas rather than rather than than oil. But on
Speaker 9: average we tend to be more sensitive to old shocks
Speaker 9: than the US for complicated reasons, due to the fact
Speaker 9: that even if we are less oil intensive than the US,
Speaker 9: the actual price of a gallon of gas in Europe
Speaker 9: is much higher than in the US, and people are
Speaker 9: probably more sensitive to that particular item. But it were
Speaker 9: if it was just about oil prices, I don't think
Speaker 9: we would be really concerned. I think most observers at
Speaker 9: the moment are more focused on what's going on with
Speaker 9: food prices. Hopefully it will continue to slow down at
Speaker 9: least this is what all sale markets would tell you
Speaker 9: for most.
Speaker 4: Of that and gas.
Speaker 9: And we went through last winter much more positively than
Speaker 9: what was expected. We need to do it again this winter,
Speaker 9: and to some extents being our control.
Speaker 7: Which feeds into the whole discussion of wage virals, especially
Speaker 7: in light of some of the labor movement that we've
Speaker 7: seen in the US but also around the world. Maybe
Speaker 7: taking a page from Europe, if anything, how much do
Speaker 7: you think that that's more noise than signal or vice
Speaker 7: versa in terms of wages staying sticky and labor power
Speaker 7: continuing to be stronger than it has been.
Speaker 9: I think there's something profound happening there is there has
Speaker 9: been an outside change in the balance of power between
Speaker 9: employees and employers.
Speaker 6: And it's very trivial to say that.
Speaker 9: But in Europe, where we have in most countries a
Speaker 9: collective wedge bargaining system, what we tend to have is
Speaker 9: more inertia in the way wages react. In the US,
Speaker 9: you could make the case that wage accelerate when people
Speaker 9: actually can leverage the job opportunities and go back to
Speaker 9: their employer and ask for a pair raise. It's not
Speaker 9: really the way it works in Europe, and some of
Speaker 9: it obviously happens, but most of the pay increases here
Speaker 9: happen as a result of collective bargaining. And it always
Speaker 9: takes a while for, for instance, the unions to realize
Speaker 9: that maybe the economy has become softer, job opportunities are falling,
Speaker 9: maybe it would be time to move back towards wage moderation.
Speaker 9: But you need actually a proper proof that the labor
Speaker 9: market is softening. And even in Europe, and that's actually
Speaker 9: one of the big positives of our current situation is
Speaker 9: even in countries which have been used to mass unemployment
Speaker 9: for decades, the current situation of the lby market is
Speaker 9: more than okay, I mean, you take France, my country,
Speaker 9: un employment rate at seven percent. If you had told
Speaker 9: me that France would be able to deliver that ten
Speaker 9: years ago, I wouldn't have believed you.
Speaker 1: Okay, eight ways to go here.
Speaker 2: But just because the time then, can you stay Europe
Speaker 2: has vaulted beyond eurosclerosis?
Speaker 1: I think clear.
Speaker 9: I think in many cases what we have is sort
Speaker 9: of magnified version of what happens in the US in
Speaker 9: terms of demographic changes, for instance, we are a sort
Speaker 9: of more acute version of what.
Speaker 6: Is going to happen in the US anyway.
Speaker 9: But one point on which I think Europe at the
Speaker 9: moment is doing better than.
Speaker 6: The US, it's on participation.
Speaker 4: The big positive.
Speaker 9: Right now in Europe is that our participation rate is
Speaker 9: rising and has been rising through the pandemic, is today
Speaker 9: much higher than it was before COVID. It's exactly the
Speaker 9: opposite of what's been happening in the US. Even if
Speaker 9: there has been a catch up. Recently, we've put more
Speaker 9: young people, more older people back to work. And basically
Speaker 9: I think we are benefiting from structural reforms which have
Speaker 9: been pushed through in Europe for the last twenty thirty years.
Speaker 9: Not spectacular ones, but gradually I think we have a
Speaker 9: much better functioning labor market than what we had twenty
Speaker 9: thirty years ago, and it's definitely positive.
Speaker 3: Jill, that is a bright spot. Thanks for famous, Jill
Speaker 3: Maak of ACA Investment Managers the Jeff you joined US
Speaker 3: now Senior market strategistic bim Y Mallan, Good.
Speaker 4: Morning, Jeff.
Speaker 3: I appreciate it's going to see it yields at five
Speaker 3: percent at the front end, pushing cycle highs on a
Speaker 3: ten year Dare I say it is this the new normal?
Speaker 4: Are we getting comfortable with this?
Speaker 10: Well, let's go back to Tom's point about real yields. Okay,
Speaker 10: you can deflate via CPI headline CPI. What if we
Speaker 10: deflate nominal yields by wage gains or potential wage gains.
Speaker 10: So then if you take the twenty percent or between
Speaker 10: twenty and forty percent real wages, sorry, nominal wage gains
Speaker 10: if realized, then real yields actually are very very negative still,
Speaker 10: and then central bankers have to catch up. So there's
Speaker 10: a risk here going back to your point about a
Speaker 10: wage price firal that isn't going away anytime soon.
Speaker 1: What is the XA accessign real yield?
Speaker 2: So here we are two percent, and I've done some
Speaker 2: fancy man I get to two point two zero.
Speaker 1: Maybe I'm still here at two.
Speaker 2: Percent, whatever it is, there's a length of this new
Speaker 2: real yield where's attention point out in the next.
Speaker 10: So basically you have to identify where potential GDP growth
Speaker 10: is medium to longer term growth in the US. If
Speaker 10: that's a headline number, nonmal number, you know, three to
Speaker 10: four percent, then find your inflation target. Then if it's
Speaker 10: still two percent, right, then real yields you still need
Speaker 10: to get to two to three.
Speaker 2: To go on Nerdy on a Monday, our mind is
Speaker 2: gr we at a risk here where the interest rate
Speaker 2: becomes less than the small g is bland charted and stiglets,
Speaker 2: among others, worry about.
Speaker 10: I'm glad you brought up Blanche because I want to
Speaker 10: bring up another paper between him and chairburn nankey. So
Speaker 10: when when does this become uprom.
Speaker 1: Nerd fast over on the port side of the desk.
Speaker 6: Favorite part of the morning.
Speaker 10: In terms of wages versus price spiral, and with the
Speaker 10: ore prices going where they are right now, you get
Speaker 10: a price spiral according to that paper when labor markets
Speaker 10: are tight, so here are the unions making the gamble
Speaker 10: or the determination in manufacturing, labor markets are still very
Speaker 10: tightline and the US which raises.
Speaker 7: A question is this signal or noise? Because this is yes,
Speaker 7: it is down tight. Though on the margins you're seeing
Speaker 7: signs that you are getting some sort of labor market softening.
Speaker 7: Is this the last gas because John was asking of
Speaker 7: labor market power or is this something else? It does
Speaker 7: have a stickier nature.
Speaker 10: On a broader basis, this does feel like a last
Speaker 10: as if I do if I look at things globally.
Speaker 10: But on the other hand, you know, I'm FX guy.
Speaker 10: At the end of the day, relatives, it's all about
Speaker 10: the relative differentials. I think US labor market's all tight
Speaker 10: up compared to what we have.
Speaker 6: In Europe right now.
Speaker 10: So on that note alone, probably labor has more bargaining
Speaker 10: power in the US compared.
Speaker 6: To in Europe.
Speaker 7: Does that mean dollar weakness?
Speaker 10: I would say, you know, a short term your dollar
Speaker 10: strength here, that's still going to be in play because
Speaker 10: that puts the FED on more vigilant footing, you know,
Speaker 10: to borrow an ECB phrase.
Speaker 6: But you know, Net, I.
Speaker 10: Think they're pretty much sure that is in the price
Speaker 10: right now. So let's see where we're going to.
Speaker 3: Be very creche of you, Jeff, Let's talk about POW
Speaker 3: on Wednesday. On Wednesday, we get a set of projections.
Speaker 3: Most people assume that for twenty twenty three, when we
Speaker 3: look at revised growth figures, they're going up. When we
Speaker 3: look at revised inflation figures, they're going down. What does
Speaker 3: twenty twenty four look like for you and the team?
Speaker 10: I saw twenty twenty four. It's less about are they
Speaker 10: going to hike further? It's more about how long do
Speaker 10: US rates and state where they are? And that is
Speaker 10: you know what the boj will be looking at and
Speaker 10: what Dara, so you didn't mention central Bank of Brazil,
Speaker 10: central Bank of Turkey, and the Central Bank of South Africa,
Speaker 10: the Swiss, they're all deciding and when they look at
Speaker 10: their nominal effective exchange rates, they'll all be looking at
Speaker 10: the FED. How long can the Fed projection keep the
Speaker 10: dollar strong? And then they'll have to calibrate their own forecasts.
Speaker 4: Called is that.
Speaker 3: Dollar problem bigger in Europe right now?
Speaker 4: For you than am?
Speaker 10: I think that dollar problem is bigger here because em
Speaker 10: a crossboard. If you look at a Brazil, for example,
Speaker 10: much higher at real rates, so they've got the buffer.
Speaker 2: Europe does not, Argie even surprised US with a low
Speaker 2: five year growth view. Suddenly oil ninety four for Jeff,
Speaker 2: you where is the price of brand? That's a tip
Speaker 2: point that really accentuates that global slowdown.
Speaker 6: Let's look at the individual markets.
Speaker 10: For example, China's at a slow down already, no matter
Speaker 10: what China, unless you're looking at a real reacceleration in China,
Speaker 10: which is nor the base case to five or six percent.
Speaker 6: Then you get into a demand.
Speaker 10: Issue top of a supply issue that becomes a problem globally,
Speaker 10: and then that could be a certain point. But right now,
Speaker 10: if it's just the US alone and given the US
Speaker 10: energy to independence, I think it's much more manageable.
Speaker 7: I'm glad you mentioned China. The Wall Street Journal had
Speaker 7: this big expose China might be weaker than you think,
Speaker 7: and to focus talked about focusing on the housing market.
Speaker 7: Other people have said, including Lelynn Miller of the China
Speaker 7: Beige Book, that from a US perspective, this is what
Speaker 7: people want to see, but it's not actually what's happening
Speaker 7: on the ground that there's actually a great deal of strength.
Speaker 7: Having been in China a couple of times recently, what's
Speaker 7: your view.
Speaker 10: So domestically, I thought consumption was firm selves there about
Speaker 10: three weeks ago. People were spending you know, some of
Speaker 10: the key torus sites in like in Ciano Terra Cotta Warriors,
Speaker 10: it was basically in a several rows behind before you
Speaker 10: could actually obvious soldiers there. But then on the way
Speaker 10: out look at Beijing Airport, you know, just in a
Speaker 10: barely any international flights coming out, so that high tiker
Speaker 10: consumption items.
Speaker 6: I think now that's a bit more of a problem
Speaker 6: at this point.
Speaker 10: Going back to the real estate market and the close linkages,
Speaker 10: and it's the financial system in China. Stabilizing the real
Speaker 10: estate market means stabilizing the financial system actually the trust
Speaker 10: and framework shadow banking for example, So you know, that's
Speaker 10: where I think they are doing the right thing. But ultimately,
Speaker 10: how much more downsie can you price in relative pricing?
Speaker 10: I think it's very limited.
Speaker 2: Do you partition China and the domestic balance sheet challenges
Speaker 2: even after Changdu or do you drag that into the
Speaker 2: more international analysis of Ritmanby and the rest.
Speaker 1: Do you partition or not?
Speaker 6: So I think at this point China's pretty much SOLF financed.
Speaker 6: We look at and flow data.
Speaker 10: International financing for China's growth is very very limited right now.
Speaker 10: So it's about domestic financial stability, and then the transmission
Speaker 10: is if things go all right, can that drag down
Speaker 10: international growth further?
Speaker 4: We've got to squeeze this in Jeff, we're in Europe.
Speaker 3: There is an ev battle taking place, and to a
Speaker 3: greater extent, I think the transition to EVS is at
Speaker 3: the epicenter the heart of this conversation with u AW
Speaker 3: and the Detroit three. At the moment, are we heading
Speaker 3: towards just massive tariffs for auto imports in places like Europe?
Speaker 10: If you ask me two weeks ago, I would have
Speaker 10: said no, But I think something changed the immuna quart ocean.
Speaker 4: What do you think changed?
Speaker 10: I think for the first time in three or four years,
Speaker 10: Chinese came back and European manufacturers looked at how farther
Speaker 10: over behind, not just in terms of cars battery technology,
Speaker 10: and realize this is much more pressing than we thought.
Speaker 10: And you saw the reaction.
Speaker 3: German manufacturers are scared of what's coming out of China.
Speaker 10: Absolutely, and China saw this in advance. That's why they
Speaker 10: want to build in Hungary near battery factories, and they
Speaker 10: want to build assembly plants in France as well. But
Speaker 10: even then, with that kind of cooperative approach, you're seeing
Speaker 10: the backlash already, and then you're seeing the backlash of
Speaker 10: the backlash from Beijing. So this is going to get
Speaker 10: in now.
Speaker 3: This is only one industry, yeah, but do you think
Speaker 3: there's broader things at play here that ultimately influence things
Speaker 3: like flows that contribute to calls in foreign exchange.
Speaker 10: I think medium to longer term, let's look at the
Speaker 10: chip industry as well, that's going to feature heavily in
Speaker 10: terms of flows into Asia, into Europe. But the importance
Speaker 10: to employment, especially in Germany and also that Eastern Europe
Speaker 10: that feeds into the German supply chain. I think this
Speaker 10: is and politically speaking that this is absolutely going to
Speaker 10: be central to Europe.
Speaker 4: Jeff, this was fantastic.
Speaker 3: Right to kick off the weight with you here in London, Jeff,
Speaker 3: you there fbny men at.
Speaker 1: Right now, we're going to survive American politics.
Speaker 2: Gregory Villier briefs this morning, Chief US Policy Strategistic AGF
Speaker 2: greg and I Wanhington posts they talk about five ideological
Speaker 2: factions of the Republican Party.
Speaker 1: I didn't know that. Do you actually buy the idea.
Speaker 2: Given labor unrest in America, given a possible government shutdown,
Speaker 2: that mister McCarthy's dealing with five ideological factions?
Speaker 11: Oh at least, yeah, it's it's it's quite a spectacle.
Speaker 11: Right now, he's on really thin ice.
Speaker 1: Tom.
Speaker 11: I don't think he can get a deal before the
Speaker 11: October one deadline. So we do have a shutdown. I
Speaker 11: call it shutdown light because it's not going to be
Speaker 11: the end.
Speaker 1: Of the world.
Speaker 11: We're not going to kill social Security and Medicare benefits.
Speaker 11: But if you want to go to a national park,
Speaker 11: you're out of luck. And I I think the shutdown
Speaker 11: is going to last for quite a while.
Speaker 2: Is there a shutdown in Detroit? What I find stark
Speaker 2: is the imagery and the great coverage by Bloomberg on this.
Speaker 2: You know, I see them picketing and there's like seven
Speaker 2: people out front. It looks like a lineup of Denny's
Speaker 2: waiting to get in. I mean, is this like a
Speaker 2: real strike of labor like you and I remember, or
Speaker 2: is it sort of kind of like pretend?
Speaker 11: Yeah, it's not like what we remember that everybody went
Speaker 11: out and he didn't selectively target factories. But I think
Speaker 11: there have been some sign of progress. I think Ford
Speaker 11: has been the most conciliatory, and I think that the
Speaker 11: elephant in the room obviously is Joe Biden. I think
Speaker 11: Biden knows that Michigan has sixteen electoral votes, and I
Speaker 11: think Biden will be influential in the final agreement.
Speaker 4: What will that entail?
Speaker 7: Do we have a sense of what it will take
Speaker 7: to get it done, and what that means for the
Speaker 7: viability of auto manufacturers that have traditionally added to the
Speaker 7: GDP and really fostered a lot of strength in the Midwest.
Speaker 11: Yeah, I think it will have to be close to
Speaker 11: thirty percent in wages forty percents out of the question,
Speaker 11: but I think the number will creep up. They may
Speaker 11: go back to more defined pensions, They may have less
Speaker 11: than a forty hour work week. It will be generous,
Speaker 11: and it will add to the perception that wages are
Speaker 11: sticky for the federal Reserve. I think sticky wages are
Speaker 11: going to be around for quite a while.
Speaker 7: Does this pressure just sort of uniting the two ideas?
Speaker 7: Does this pressure lawmakers to try to get a budget
Speaker 7: deal done just to avoid the extra hit on that front,
Speaker 7: especially at a time where there might be some agreement
Speaker 7: on things like border control between the Republicans and Democrats.
Speaker 11: I tell you, Lisa, these people are on a different
Speaker 11: planet from you and me. They are fighting these parochial
Speaker 11: fights knowing they're going to lose. I mean, it's quite
Speaker 11: clear that this compromise over the weekend would never make
Speaker 11: it through the Senate. I'm not even sure it would
Speaker 11: make it through the House. So we're going to go
Speaker 11: through this exercise, and sadly, I think this drags on
Speaker 11: right into the holiday season, maybe after the holiday season,
Speaker 11: before we get a deal.
Speaker 2: Greg, you're going to turn the script once again over
Speaker 2: the weekend, lots of discussion about the president's age. I
Speaker 2: think all of our listeners and viewers are sort of
Speaker 2: exhausted by the debate. But I want to know the
Speaker 2: valier timeline to where I get an LBJ announcement. Like
Speaker 2: March of nineteen sixty eight, you and I were sitting
Speaker 2: on the couch watching the Bruins lose when that happened.
Speaker 2: How do we get Joe Biden out to where LBJ
Speaker 2: was in March of sixty eight.
Speaker 11: I don't think he realizes there's a problem. More and
Speaker 11: more Democrats I talked to almost all of them, as
Speaker 11: a matter of fact, say they would like to see
Speaker 11: Biden step down. Two problems. Number One, he is delusional
Speaker 11: and he doesn't think there is a problem. Number Two,
Speaker 11: there is no logical successor. That's the problem for the party.
Speaker 3: To the polls screen, Greg, that is a problem absolutely.
Speaker 11: I mean about seventy percent of Democrats say they would
Speaker 11: prefer a different nominee. I mean that I've never seen
Speaker 11: a gap like that, so you could have more pressure,
Speaker 11: you know. The other thing guys I should mention is
Speaker 11: that filing deadlines are fast approaching. By late October early November,
Speaker 11: it's too late to file, So any talk about some
Speaker 11: last minute rescue for the party I think is unwarranted.
Speaker 3: Greg, before you run, before you go. If you heard
Speaker 3: about that missing F thirty five, have you read the
Speaker 3: story on that.
Speaker 11: Missing What.
Speaker 4: F thirty five fighter jet gone missing?
Speaker 1: I'm the Carolinus. Yeah, yeah, Greg, what on.
Speaker 3: Earth is going on? How does the military lose in
Speaker 3: F thirty five?
Speaker 11: I know it's quite a story, and yeah, I think
Speaker 11: it's going to get bigger.
Speaker 4: Great valueah of AJF. Thank you sir.
Speaker 2: Let us move on and Rita enjoys us to save
Speaker 2: us here from the ballpark, co founder, head of research
Speaker 2: and Energy aspects and critically joins us this morning from Canada,
Speaker 2: which is an oil producer, and Rita within your racket,
Speaker 2: within your industry, are they looking at this as a
Speaker 2: surge that can ebb or is there a feeling, you know,
Speaker 2: within the macro petroleum.
Speaker 1: Business that this is a new pricing to stay.
Speaker 8: Well, it's still early, it's not even five am here,
Speaker 8: so I don't know how they're feeling. But if I
Speaker 8: had to guess Tom, I would say they are all
Speaker 8: going to be very happy. I mean, of course, there's
Speaker 8: well Petroleum Congress over here, Ministers from all around the
Speaker 8: world are gathering, including Prince Apleses himself. There's lots and
Speaker 8: lots of kind of you know, talks with both consumers
Speaker 8: and producer governments really over the next couple of days
Speaker 8: over here, and I think the reality is that demand
Speaker 8: has surprise to the upside, regardless of all the recessionary
Speaker 8: fears that we've seen. Think that's why what is interesting
Speaker 8: for me is, yes, crude is getting all the headlines
Speaker 8: now we're talking about it, but if you look at
Speaker 8: products and crack spreads that have already been high for
Speaker 8: the last few months, gasoline, diesel, they've been trading one
Speaker 8: hundred and twenty plus dollars per barrel. Crude was eighty.
Speaker 8: Now crud's catching up, but those prices haven't necessarily gone
Speaker 8: up further. So this is more of a redistribution between
Speaker 8: refiners and producers than really end users feeling the impact.
Speaker 8: So I know why the media is focusing on the crude,
Speaker 8: but I don't think the end user is necessarily seeing
Speaker 8: that big an impact versus a few months ago.
Speaker 2: Right, what is a representation or tone of China? Is
Speaker 2: the marginal demand elephant in the room at the Congress?
Speaker 1: Is China there in a big way?
Speaker 8: I think there is going to be presence for sure,
Speaker 8: and I think again the dichotomy between Chinese macro and
Speaker 8: Chinese all demand is definitely going to come up, something
Speaker 8: we've been highlighting for some time now because in the
Speaker 8: West and Western analysts keep looking at the Chinese micro
Speaker 8: data and saying, well, ail demand hasn't been performing yet
Speaker 8: aldemand has actually been hitting record highs because it's become
Speaker 8: more consumer oriented. Plus, China's got some strategic petroleum reserve
Speaker 8: filling going on as well. In some ways, the US
Speaker 8: has been drawing it down last year and China now
Speaker 8: is actually refilling it, having locked in some favorable prices
Speaker 8: earlier in the year.
Speaker 7: What's the pressure on Prince Abdulaziz today, who's going to
Speaker 7: be speaking, I believe around ten am Eastern time at
Speaker 7: the Calgary conference, to really increase production, especially if this
Speaker 7: is being driven in part by demand, not just their
Speaker 7: supply cuds.
Speaker 8: Well, I think he's been very clear that, look, there
Speaker 8: still is a lot of uncertainty, be it from the
Speaker 8: FED itself or even China, all the kind of noise
Speaker 8: that's coming around, and he has to be one thousand
Speaker 8: percent confident, I would say, not even one hundred percent
Speaker 8: that there are not going to be any of these
Speaker 8: you know, prices with the FED for instance, and it's
Speaker 8: a bit of a chicken and egg, right if all
Speaker 8: prices go up, what does the FED do? As you
Speaker 8: guys have been talking about as well. But I think
Speaker 8: they are going to be cautious. They want to ensure
Speaker 8: that balances or at least inventries do not build because
Speaker 8: of those macro concerns. And looks Audi Arabia has extended
Speaker 8: the cuts still your end, so has Russia. It kind
Speaker 8: of gives for them. The main thing they want to
Speaker 8: provide is stability, and I think that's what he's trying
Speaker 8: to do, and I think that's what he's going to
Speaker 8: focus on today.
Speaker 7: It's a really interesting confluence of events at the United Nations.
Speaker 7: They're holding a conference right now or a lot of
Speaker 7: the focus is going to be unsustainable energy and moving
Speaker 7: away from fossil fuels. You have electric vehicles taking over.
Speaker 7: That is underpinning some of the discussions with the UAW.
Speaker 7: How much is that underpinning Saudi Arabia's decision to cut
Speaker 7: production to get more profits now before some of these
Speaker 7: groups phase out fossil fuels before they've become less of
Speaker 7: a focus later on.
Speaker 8: Or you could argue that goes both ways. Lisa right.
Speaker 8: I've also heard the argument that that's why other countries
Speaker 8: want to flood them market and make sure they don't
Speaker 8: have stranded assets afterwards. I don't think OPEC plus policy
Speaker 8: works like that. We've written about this as well, that
Speaker 8: ultimately South the Arabian most OPEC countries are revenue optimizers.
Speaker 8: Right What they are trying to do for themselves is saying, Okay,
Speaker 8: if this is the price and we cut production or
Speaker 8: race production, what is our total revenue going to be?
Speaker 8: That is what they are focusing on right now. Of
Speaker 8: course they are concerned about long term energy transition, but
Speaker 8: I wouldn't even use the word concerned. I think they
Speaker 8: embrace it. They are doing a lot around it, and
Speaker 8: they very much are aware that oil has to fade
Speaker 8: over time, they just disagree with the timelines, Like the
Speaker 8: IA has put out, what's the.
Speaker 2: A'mer going to send timeline of an oil vector? I
Speaker 2: guess in June or July of seventy something up to
Speaker 2: ninety four fifty one right now? Is that just a
Speaker 2: continued vector up? Do you see ninety five, ninety six,
Speaker 2: ninety seven, et cetera, et cetera, et cetera.
Speaker 8: Yeah, if you remember, tom our price forecast for Q
Speaker 8: four was an average of ninety two dollars for Rent.
Speaker 8: So I think we've we've kind of hit it now.
Speaker 8: So the question is, but look, an average of ninety
Speaker 8: two does allow oil prices to go to a hundred?
Speaker 8: We're going to We're putting out a piece later today
Speaker 8: which is calling for one hundred dollars by Halloween for Brent.
Speaker 8: And again, you know this is this is just a trajectory,
Speaker 8: and at this point of course, it's a short term thing, right,
Speaker 8: I'm not saying it's going to average above hundred, But
Speaker 8: could it go two hundred dollars for a bit? Absolutely?
Speaker 1: Yes.
Speaker 3: The triple digit by Halloween is amurates? Is that just
Speaker 3: a marketing mechanism? Just you know, triple digit something about it.
Speaker 8: It just rhymes right, hundred by Halloween. That's why I
Speaker 8: know I'm joking, but it's no.
Speaker 1: I think.
Speaker 8: Look, fundamentals are very very strong right now, but also positioning,
Speaker 8: and that's one thing we shouldn't miss. A lot of
Speaker 8: hedge funds are very under positioned and crude because of
Speaker 8: the macro concerns. Now we are seeing quite a bit
Speaker 8: of passive money come back as well, so I think
Speaker 8: the combination of that could actually lead to a temporary
Speaker 8: kind of upswing in crude. And that's why I'm not
Speaker 8: saying we're still we're not expecting it to average above hundred,
Speaker 8: but it could go about hundred and in the next
Speaker 8: couple of.
Speaker 3: Weeks, only five dollars away. Right now, I'm ready to
Speaker 3: thank you. I'm ready to send Avanergy as space.
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