WEBVTT - Surveillance: US Resiliency with Fillion 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 Farrell and Lisa Brownowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.280 and of course on the Bloomberg terminal. I'm wearing blue 0:00:30.680 --> 0:00:33.199 for frost this air MS tie. We wear that when 0:00:33.280 --> 0:00:37.080 Johnny Phillion shows up chief executive of BMP Parry bout, 0:00:37.120 --> 0:00:40.200 Lisa brownwits and time King John Farrell wishing it was here. 0:00:40.560 --> 0:00:43.280 I mean it's it's frankly too bad because John is 0:00:43.640 --> 0:00:46.479 far more knowledgeable of this. But for the gentleman from 0:00:46.520 --> 0:00:48.600 BMP parow, We're gonna get right into it. With futures 0:00:48.640 --> 0:00:52.599 up thirt Lisa's got actually adult questions forget about it. 0:00:53.080 --> 0:00:58.680 Explain the joy in two thousand eighteen when France pled 0:00:58.760 --> 0:01:02.000 this incredibly differ are called feed off. What was it 0:01:02.080 --> 0:01:05.040 like for all of the BNP Perry pat family to 0:01:05.240 --> 0:01:08.360 see France do this four years ago? Well, Tom, thank 0:01:08.360 --> 0:01:10.360 you for having me. By the way, Lisa as well, 0:01:10.880 --> 0:01:15.280 it was a real celebration for the whole country, including 0:01:15.319 --> 0:01:17.760 at bmp PI. But obviously, and that was the second 0:01:17.800 --> 0:01:22.120 time that France won the World Cup. Then there with 0:01:22.200 --> 0:01:25.440 a lot of expectations for this upcoming World Cup viavly Blue, right, 0:01:25.760 --> 0:01:30.800 it's always complex to be the defending country, right exactly. 0:01:30.959 --> 0:01:35.040 And you know today in this uh, in this soccer landscape, 0:01:35.040 --> 0:01:38.440 there is no small teams anymore. Francis play Denmarks or 0:01:38.520 --> 0:01:42.280 Tunisia Australia, and you just never know. I will keep 0:01:42.319 --> 0:01:44.720 an eye. I have the privilege of being French an American. 0:01:45.000 --> 0:01:47.440 Then I have two teams, you know, to support and 0:01:47.480 --> 0:01:49.520 because of John is not here with us today, but 0:01:49.560 --> 0:01:51.320 I would keep an eye on England, I promise. I 0:01:51.400 --> 0:01:53.200 went to John and I said, give me a smart 0:01:53.280 --> 0:01:56.720 question there, uh John even and he said, asked about 0:01:56.720 --> 0:01:59.600 a thirty six year old Olivier is getting a little old, 0:01:59.640 --> 0:02:04.080 how an older French team do and the heat. Well, 0:02:04.280 --> 0:02:06.640 it's a combination. You know. The World Cup is a 0:02:06.720 --> 0:02:09.680 long journey, it's a one months competition, and you're right, 0:02:09.720 --> 0:02:13.400 it's a combination of youth energy but experience. And I 0:02:13.440 --> 0:02:16.000 think this French team is putty what equipped on on 0:02:16.040 --> 0:02:19.000 both fronts. So you said that you're both us as 0:02:19.040 --> 0:02:21.640 well as French, and you can vote for both teams, 0:02:21.680 --> 0:02:24.280 and you can read from both teams as the US 0:02:24.520 --> 0:02:28.359 arm of the biggest European bank, how much is your 0:02:28.400 --> 0:02:31.840 main company diverting money to you because it is so 0:02:31.919 --> 0:02:35.680 much stronger here in the US. Well, this economy is 0:02:36.960 --> 0:02:40.200 still the most basilient economy in the world. Uh. If 0:02:40.280 --> 0:02:43.480 we look at the status today in terms of tight 0:02:43.560 --> 0:02:47.560 labor market, in terms of status of corporate balance sheets, 0:02:47.720 --> 0:02:52.720 households are still spending and the capital markets are still functioning. 0:02:53.240 --> 0:02:57.200 And uh, a US bank here has been benefiting from this. 0:02:57.600 --> 0:03:01.240 Having said that, our economists are pretty predicting a shallow 0:03:01.360 --> 0:03:06.880 recession in because the US economy is still very quite 0:03:06.960 --> 0:03:10.120 interconnected with the rest of the world, we expect to 0:03:10.440 --> 0:03:14.840 rebound in. How much does that affect your willingness to 0:03:14.960 --> 0:03:17.320 lend right? I mean, because if you basically you're tasked 0:03:17.320 --> 0:03:20.400 with trying to support other aspects of the bank, perhaps 0:03:20.400 --> 0:03:23.200 that are in other areas that aren't as optimistic, perhaps 0:03:23.240 --> 0:03:25.320 as the US, but the US is also in a 0:03:25.360 --> 0:03:28.360 difficult spot. How do you decide how loose to be 0:03:28.480 --> 0:03:31.440 with your purse? You? Risk management is critical. You have 0:03:31.480 --> 0:03:34.040 to be quite selective with the sectors you cover with 0:03:34.080 --> 0:03:36.360 the clients you support. But I have to say, if 0:03:36.400 --> 0:03:40.280 I look at my client needs today, it's around three dimensions. 0:03:40.760 --> 0:03:45.800 Lending your right. Even the most frequent issuers in high grade, 0:03:46.160 --> 0:03:49.800 you know, because of the higher cost of funding, they 0:03:50.000 --> 0:03:53.800 try to wait, and we're actually bridging significant number of 0:03:53.840 --> 0:03:57.320 capital market transactions to optimize your capital raising. Hold on 0:03:57.320 --> 0:03:59.160 a second, So this is really important. Other words, you're 0:03:59.200 --> 0:04:02.080 taking on your books that basically you're saying you'll lend 0:04:02.120 --> 0:04:04.160 at a lower rate than the market rate to have 0:04:04.280 --> 0:04:06.600 them wait until rates are lower. It's a combination of 0:04:06.720 --> 0:04:09.480 lower rates or making sure they can pick the right 0:04:09.560 --> 0:04:12.400 window high rate as remain open. But you have to 0:04:12.400 --> 0:04:15.160 pick your windows if you want to optimize your capital rating. 0:04:15.320 --> 0:04:18.520 The second important need I see from clients today is 0:04:18.520 --> 0:04:22.800 waste management and hedging sprategies, and it's really across rates 0:04:22.800 --> 0:04:26.440 and communities and currencies and in equities. They took a 0:04:26.480 --> 0:04:30.120 cup of coffee in Beijing decades ago with the senior 0:04:30.160 --> 0:04:34.039 officer of BMP parabout with the decades of French experience 0:04:34.160 --> 0:04:38.160 in China, give us your perspective and our China is 0:04:38.200 --> 0:04:42.080 going to extricate itself from this mess. Well, it's definity 0:04:42.120 --> 0:04:44.359 another country. We have a lot of connection with the 0:04:44.360 --> 0:04:47.919 bank as presidents there. Uh oh, you understate, come on 0:04:48.000 --> 0:04:52.440 the bed. It's huge traditional presence there. And still if 0:04:52.480 --> 0:04:54.440 you expect this economy in two any two eight three 0:04:54.600 --> 0:04:57.880 to go through a shadowy session, your bozone is already 0:04:57.880 --> 0:05:01.040 in my session. You still see to a China providing 0:05:01.080 --> 0:05:04.800 some growth to the double economy which we expect to 0:05:04.800 --> 0:05:09.000 be for two around two and it's a it's a downturn. 0:05:09.680 --> 0:05:12.159 Uh in China. A lot of it will be around, 0:05:12.360 --> 0:05:16.640 you know, getting truly out of the pandemic and obviously 0:05:16.680 --> 0:05:19.840 expecting some most ability there. The heritage of your shop 0:05:20.200 --> 0:05:24.240 is a wonderful reticence to speak about economic boom. Your economist, 0:05:24.240 --> 0:05:26.799 Carl Rico, donno, we've got a not in a quaince. 0:05:26.839 --> 0:05:29.719 So thank you, sir for stealing him from Bloodboard. Will 0:05:29.720 --> 0:05:33.119 never forgive you. But Mr Rickodon and back to Dr 0:05:33.200 --> 0:05:36.880 Cornado has been dead on about g d P. What 0:05:37.000 --> 0:05:41.040 does he say in this titanic battle we're having on recession? 0:05:41.720 --> 0:05:43.839 Calling by his way, it was my only way to 0:05:43.880 --> 0:05:46.120 be to really continue to be part of the Bloomberog 0:05:46.160 --> 0:05:48.600 family to have called on that. And we love to 0:05:48.960 --> 0:05:51.400 thank you for that, having trained in post so many 0:05:51.440 --> 0:05:57.400 years college saying in three shadow accision as we've just discussed, 0:05:57.400 --> 0:06:00.400 you know, minus one percent, but he's very confident done that. 0:06:00.480 --> 0:06:04.279 In four he sees is rebound because of the good 0:06:04.320 --> 0:06:07.599 foundations of the resiliency of this economy and back to 0:06:08.040 --> 0:06:10.680 a more normalized g D pig voles around. You know. Two, 0:06:11.320 --> 0:06:13.240 how concerned you as you are? You as you look 0:06:13.240 --> 0:06:15.440 at some of the risk management you're talking about earlier, 0:06:15.480 --> 0:06:18.800 as you decide how much to lend, how do you 0:06:18.839 --> 0:06:22.000 factor in exogenous events? How do you factor in a 0:06:22.080 --> 0:06:24.640 colder winter? How do you focus in how do you 0:06:24.680 --> 0:06:27.960 fold in the prospect of a federal reserve that potentially 0:06:27.960 --> 0:06:30.200 could go well beyond what people currently I wish we 0:06:30.200 --> 0:06:32.400 had all the answers to your wonderful questions. So how 0:06:32.440 --> 0:06:35.039 do you even model it out? I wait, well, definitely 0:06:35.080 --> 0:06:36.719 in bring out. But you know the way it really 0:06:36.760 --> 0:06:39.240 works in the real life, it's really about the sectors, 0:06:39.279 --> 0:06:42.680 about the clients, and honestly about the management you deal with, 0:06:42.760 --> 0:06:45.520 because a big part of managing the companies between the 0:06:45.520 --> 0:06:49.200 hands of the leaders um. You know, you you mentioned 0:06:49.200 --> 0:06:51.920 in flish and you mentioned energy. If I look at 0:06:52.600 --> 0:06:55.840 back to comparison between Europe and US. I think you're 0:06:55.920 --> 0:06:59.440 up as two main challenges in the in the months 0:06:59.440 --> 0:07:02.480 to come. It's obviously inflation and the e c B 0:07:02.680 --> 0:07:05.159 is going exactly in the same direction as the FED. 0:07:05.480 --> 0:07:07.480 You know they're gonna be okish, they're doing the job. 0:07:07.960 --> 0:07:10.840 And the second one is energy. And on the energy 0:07:10.880 --> 0:07:14.320 side you start seeing with the good news is for 0:07:14.400 --> 0:07:19.480 two for the winter three. I think the Eurozone has 0:07:19.520 --> 0:07:22.440 managed to, you know, to to to navigate through this 0:07:22.640 --> 0:07:25.840 energy crisis. And I think the second trend and I 0:07:25.840 --> 0:07:28.880 can see this happening already there, it will happen here eventually. 0:07:29.360 --> 0:07:35.119 You see a real commitment to diversify sources of energy 0:07:35.640 --> 0:07:41.840 renewable hydrogen, star wind, hydro when it works. But I 0:07:41.880 --> 0:07:44.880 think the trainers left the station on this front. And 0:07:44.920 --> 0:07:49.640 in Europe there is a probably very favorable regulatory and 0:07:50.120 --> 0:07:54.080 UH fiscal environment to support this trend toward s G 0:07:54.200 --> 0:07:57.080 and sustainability. Johnny Julian, thank you so much for joining 0:07:57.120 --> 0:07:59.280 us here and we do accept your invitation to come 0:07:59.320 --> 0:08:05.000 to Paris and April. You got team surveillance at the 0:08:05.040 --> 0:08:11.160 little cafe. There's a little cafe overlooking Dander Luxembourg effee 0:08:11.200 --> 0:08:13.600 sweets and you know the three of us out there 0:08:13.640 --> 0:08:15.840 remote on the street, but are you really that person? 0:08:16.480 --> 0:08:22.880 Thank you for inviting yours. I'll be going to bucket. 0:08:23.200 --> 0:08:28.360 I need a bugette great as with BMP Perry. Thank 0:08:28.360 --> 0:08:30.240 you so much for telling us France will do it 0:08:30.280 --> 0:08:44.960 again at the World Cup as well. Right now. David Balan, 0:08:45.040 --> 0:08:49.480 Chief Investment Officer, Global Head of Investments, It's City Global Wealth. David, 0:08:49.840 --> 0:08:52.560 I'm not surprised to hear you say quality is in 0:08:52.720 --> 0:08:56.320 order for two thousand twenty three. But color to the quality, 0:08:56.480 --> 0:08:59.760 what does it look like? Well, you know, we're gonna 0:09:00.000 --> 0:09:01.720 continue to earn money all the way through the next 0:09:01.760 --> 0:09:04.040 year without a decline. Those stocks that pay dividends and 0:09:04.080 --> 0:09:06.640 pay buybacks, well you and Lisa were just talking about 0:09:06.720 --> 0:09:10.480 is incredibly important because the Fed has raised rates and 0:09:10.559 --> 0:09:13.000 is going to raise rates more looking at the data 0:09:13.280 --> 0:09:16.000 on inflation that is behind it, the leading you know, 0:09:16.040 --> 0:09:19.040 the lagging indicators, that's what they're looking at, and as 0:09:19.080 --> 0:09:21.280 a result, they're gonna have rates go too high and 0:09:21.280 --> 0:09:23.400 they're going to keep them there for too long. And 0:09:23.440 --> 0:09:25.120 if they do that, we are going to have not 0:09:25.200 --> 0:09:28.080 only a recession, but potentially it's seriously you know, serious 0:09:28.080 --> 0:09:30.520 in terms of its length, and potentially it's breadth. And 0:09:30.520 --> 0:09:32.720 that's really what's being set up here. And the market 0:09:32.960 --> 0:09:35.679 you know, looks at it somewhat sanguin, you know when 0:09:35.720 --> 0:09:38.360 the senguin lens, and I think that's a mistake because 0:09:38.480 --> 0:09:40.600 really what we're dealing here is potentially with an earnings 0:09:40.600 --> 0:09:43.040 decline that is not yet priced into the market. For 0:09:44.600 --> 0:09:48.720 the earnings decline assumes also revenue declined. Do you just assume, 0:09:48.800 --> 0:09:52.600 with the dearth of nominal GDP off the the oddities 0:09:52.640 --> 0:09:55.080 of the last twenty four months at revenue growth comes 0:09:55.080 --> 0:09:57.920 in as well as earnings, but actually is going to 0:09:58.000 --> 0:10:01.320 come in tom is the is the is the profit margin? Right. 0:10:01.360 --> 0:10:04.000 Revenues will go up, of course with inflation, but costs 0:10:04.000 --> 0:10:06.240 are going to go up more than that. The ability 0:10:06.240 --> 0:10:08.880 for people who produce goods to actually pass on pricing 0:10:08.960 --> 0:10:11.400 creatures is going to go away. And the reason is 0:10:11.440 --> 0:10:15.640 because inventories are extremely hot. And what inventories do is they, 0:10:15.640 --> 0:10:17.400 you know, they drive prices down so we'll all be 0:10:17.440 --> 0:10:20.280 able to buy, you know, things less expensively during this 0:10:20.360 --> 0:10:23.320 coming in Black Friday, in Christmas season, but ultimately it's 0:10:23.360 --> 0:10:25.560 going to make profits you know, go down next year, 0:10:25.880 --> 0:10:27.800 and I think it's going to cause you know, the 0:10:27.840 --> 0:10:30.200 economy to slow more than people think, because you know, 0:10:30.280 --> 0:10:34.000 once inventories build like this, then production, your future production 0:10:34.280 --> 0:10:37.640 will be reducing disproportionately downward. David, I want to sit 0:10:37.679 --> 0:10:40.280 on something that you said that potentially because if it's 0:10:40.280 --> 0:10:42.520 going to raise rates far beyond people think, even in 0:10:42.960 --> 0:10:45.200 the face of weakness, that is happening more rapidly than 0:10:45.240 --> 0:10:47.920 perhaps people realize. This is going to lead to a 0:10:48.040 --> 0:10:51.000 long and potentially deep recession, right, I mean, that's essentially 0:10:51.000 --> 0:10:52.880 what you're saying, and then that's not being priced in. 0:10:53.160 --> 0:10:55.720 I'm looking right now at NASDAC down this year. I'm 0:10:55.720 --> 0:10:58.960 looking at an SMP and down this year. Where is 0:10:58.960 --> 0:11:01.320 it not being priced stand well, Le, So you know, 0:11:01.559 --> 0:11:03.800 if you actually take a look at recessions historically, you 0:11:03.840 --> 0:11:06.800 know they could see markets down you know, easily between 0:11:06.880 --> 0:11:10.720 thirty But this is the most important single line that 0:11:10.760 --> 0:11:13.520 you know, I think people are missing. Markets have never 0:11:13.679 --> 0:11:18.360 bottomed before a recession has begun. Look back at the 0:11:18.400 --> 0:11:21.000 historical data and that's why you know, you see these 0:11:21.000 --> 0:11:23.400 bear market rallies, you see shortcovering, you see the fact 0:11:23.400 --> 0:11:25.199 that we're in the fourth quarter, and the fourth quarter 0:11:25.240 --> 0:11:27.320 is always a good quarter. You know, all of those 0:11:27.320 --> 0:11:30.240 things are true too. But what we have to do 0:11:30.320 --> 0:11:32.600 is actually price in what is going what is going 0:11:32.640 --> 0:11:34.800 to happen in the future, and what you said earlier. 0:11:34.800 --> 0:11:36.360 You know, let's take a look at housing as a 0:11:36.440 --> 0:11:39.280 leading indicator right right now. You know, housing, how the 0:11:39.320 --> 0:11:41.319 houses that were started a year ago when interest rates 0:11:41.400 --> 0:11:43.760 a three percent needs to be completed, so the amount 0:11:43.800 --> 0:11:47.960 of housing unemployment that's taken place is virtually zero. We 0:11:48.000 --> 0:11:50.840 think that there'll be four hundred thousand people unemployed in 0:11:50.920 --> 0:11:53.640 housing next year, and about two million people who will 0:11:53.640 --> 0:11:57.240 be unemployed across the economy, which is not especially deep recession, 0:11:57.280 --> 0:12:00.600 but it's certainly not positive employment growth as we've almost 0:12:00.600 --> 0:12:03.000 all year long. David, what does this mean in terms 0:12:03.040 --> 0:12:04.960 of what you're recommending to her clients? I mean, if 0:12:05.000 --> 0:12:07.400 you're talking about a long and deep recession, is this 0:12:07.520 --> 0:12:09.920 hide out in tenure treasuries? Is this hiding out in 0:12:10.000 --> 0:12:11.839 t bills until we have a better sense of what's 0:12:11.840 --> 0:12:14.960 going to happen. Yeah, we are deeply wave Lisa over 0:12:15.120 --> 0:12:18.120 were deeply overweight bonds at the moment you know, we 0:12:18.120 --> 0:12:19.880 think the bonds are going to be a terrific investment, 0:12:19.880 --> 0:12:21.400 by the way, because you know, if you buy attaining 0:12:21.440 --> 0:12:23.960 your bond today, let's say three a D right, and 0:12:24.000 --> 0:12:26.080 it happens to go to you know, three P and 0:12:26.120 --> 0:12:28.280 you hold it for a year and change, you know 0:12:28.320 --> 0:12:30.920 that total return on that bond could be because we 0:12:31.000 --> 0:12:33.240 think interest rates are going to be down a year 0:12:33.360 --> 0:12:34.640 to a year and a half from now. You know, 0:12:34.679 --> 0:12:36.960 we hit the long term rate on the Tenure Committe 0:12:36.960 --> 0:12:39.520 between two fifty and three. And that's because once our 0:12:39.520 --> 0:12:42.480 recession begins, rage will of course, you know, come down, 0:12:42.720 --> 0:12:45.360 and once we have unemployment prints for a couple of months, 0:12:45.880 --> 0:12:47.920 will finally realize as vocal, did they have to do 0:12:48.000 --> 0:12:50.880 something about it? Well, your economics team, and good morning 0:12:50.880 --> 0:12:54.119 Andrew Holland Horse has been way out front on the slowdown, 0:12:54.600 --> 0:12:57.559 called David Bale, and we've got a stagger to December 0:12:57.640 --> 0:13:00.400 two and all of a sudden the jobs report, which 0:13:00.440 --> 0:13:03.559 is of interest. Are we going to see the unemployment 0:13:03.720 --> 0:13:05.959 rate move in December yet or does that all wait 0:13:06.040 --> 0:13:09.040 till the first week of January? Well it certainly could, 0:13:09.120 --> 0:13:12.920 you know, Tom. The rders come down relatively little so far, 0:13:13.080 --> 0:13:14.920 you know. But what we're seeing are you know, the 0:13:14.960 --> 0:13:17.559 postings come down. We're seeing a lot of pre announcements 0:13:17.600 --> 0:13:20.079 of layoffs all across the tech industry. Some of the 0:13:20.200 --> 0:13:23.120 names you were talking about, you know, are are planning 0:13:23.160 --> 0:13:26.800 you know ten in fifteen thou uh, you know, layoffs 0:13:27.280 --> 0:13:30.000 next you next year. But those haven't happened yet. And 0:13:30.040 --> 0:13:33.160 of course we haven't seen this sort of industrial company 0:13:33.480 --> 0:13:36.800 off anybody at this point because of the hoarding of labor. David, 0:13:36.840 --> 0:13:39.280 thank you for the brief. David Balin City Group Global Wealth, 0:13:39.400 --> 0:13:45.280 just thrilled to have them on. We are briefed by 0:13:45.320 --> 0:13:49.839 Amrita Sind of Energy Aspects this morning. A Marina help 0:13:49.920 --> 0:13:52.040 me with a recent pullback in oil? Is it just 0:13:52.080 --> 0:13:54.960 a bat Demand won't be there now? I think there's 0:13:55.000 --> 0:13:57.079 a lot of confusion in the market right now, right 0:13:57.160 --> 0:13:59.600 and yes, demand in China is weak, and this is 0:13:59.640 --> 0:14:02.920 something been saying for some time. Don't get too excited 0:14:02.960 --> 0:14:05.880 by all the headlines coming out of China about reopening 0:14:05.880 --> 0:14:09.120 because that reopening isn't happening until April of next year. 0:14:09.520 --> 0:14:11.680 So right here, right now, there are more locked down. 0:14:11.720 --> 0:14:15.280 So absolutely demand in China will remain weak. Now the 0:14:15.480 --> 0:14:18.120 thing is the rest of the world demand is actually 0:14:18.120 --> 0:14:21.520 pretty decent and the numbers coming in have actually surprised 0:14:21.560 --> 0:14:23.880 to the upside and not downside. So how does that 0:14:23.920 --> 0:14:26.280 frame up for next year? Every you know, a hundred 0:14:26.320 --> 0:14:30.400 page report I skimmed through says Pacific rim demand is 0:14:30.440 --> 0:14:33.400 the variable. If we get what Lisa talks about five 0:14:33.960 --> 0:14:36.960 China GDP growth, does that reverse you out to a 0:14:37.040 --> 0:14:40.360 hundred and twenty a barrel? Absolutely, China, It's going to 0:14:40.480 --> 0:14:44.480 be critical for next year's balances. And I think again, 0:14:44.520 --> 0:14:48.920 if you look at what has caused this year's kind 0:14:48.920 --> 0:14:52.200 of softness, it's been China. It's not that we were 0:14:52.240 --> 0:14:56.640 expecting a reopening, but these renewed lockdowns have actually dental 0:14:56.720 --> 0:15:01.040 demand quite substantially more than we all the market was expecting. 0:15:01.040 --> 0:15:02.960 And I think that's one of the biggest reasons why 0:15:03.040 --> 0:15:06.200 China is not out buying crude right now. They are 0:15:06.240 --> 0:15:09.160 going to be the biggest variable for next year, especially 0:15:09.560 --> 0:15:12.880 given all the uncertainties around Russian oil. With the EU 0:15:13.000 --> 0:15:15.280 and bargo ticking in on the fifth of December, we 0:15:15.360 --> 0:15:18.360 are going to lose some Russian barrels, but that is 0:15:18.400 --> 0:15:20.920 again going to be after the products embargo on the 0:15:20.960 --> 0:15:23.200 fifth of February, So the timing is going to be 0:15:23.240 --> 0:15:26.120 critical that if China starts to reopen from April, the 0:15:26.160 --> 0:15:29.240 real upside and the drill tightening and balances is going 0:15:29.280 --> 0:15:31.320 to be Then why is the bookcase for oil now 0:15:31.400 --> 0:15:33.520 coming truition now given that we are getting a bit 0:15:33.560 --> 0:15:36.200 colder now and that we do have a bit more 0:15:36.240 --> 0:15:39.360 resilient of US economy. Yeah, I mean, look, there's a 0:15:39.400 --> 0:15:41.880 lot of your end positioning going on as well. But 0:15:42.160 --> 0:15:44.080 what I and this gets a little bit technical to 0:15:44.160 --> 0:15:46.680 bear with me, but I think what's been interesting is, 0:15:46.840 --> 0:15:48.320 you know, and I've seen a lot of kind of 0:15:48.600 --> 0:15:52.200 narrative around this that Accruede has obviously sold off and 0:15:52.240 --> 0:15:54.840 that just means everything. It's very verish. If you look 0:15:54.840 --> 0:15:58.160 at the products markets, pretty much every single products and 0:15:58.200 --> 0:16:00.360 all of all of them in Asia are back dated. 0:16:00.440 --> 0:16:04.400 That tells you that the underlying demand conditions are strong. 0:16:05.040 --> 0:16:09.480 Usually when the market is wobbling because of fundamentals, it 0:16:09.560 --> 0:16:11.680 tends to come for the product site. But if you 0:16:11.720 --> 0:16:14.640 look at gasoline, diesel, even fuel oil and after which 0:16:14.680 --> 0:16:18.040 had been weaker, have all strengthened over the course of 0:16:18.080 --> 0:16:21.120 the month. So this is more of a macro thing 0:16:21.160 --> 0:16:25.440 that's driving crude stronger dollar obviously, worries about continuous rate highs. 0:16:25.840 --> 0:16:28.600 We had even correlation with bitcoin, which is just insane 0:16:28.640 --> 0:16:31.080 and tells you that not that many specialists are trading 0:16:31.120 --> 0:16:34.640 crude oil right now. And policy uncertainty, which we've talked 0:16:34.680 --> 0:16:36.960 about on this show before as well, is just not helping. 0:16:37.320 --> 0:16:39.880 We don't know because of the amount of even media 0:16:39.920 --> 0:16:43.600 reports constantly contradicting one another. You know, we have very 0:16:43.600 --> 0:16:46.080 strong views about the EU embargo, but people are telling us, 0:16:46.080 --> 0:16:48.440 clients are telling us, oh, do you think Europe is 0:16:48.440 --> 0:16:50.120 going to go ahead with the embargo? And I think 0:16:50.120 --> 0:16:52.280 that's what's creating a lot of confusion in the market. 0:16:52.360 --> 0:16:55.120 So even putting aside all of that confusion, when you 0:16:55.160 --> 0:16:57.200 hear from people who say they're actually Europe isn't a 0:16:57.280 --> 0:16:59.440 much better position than they previously were, not just for 0:16:59.480 --> 0:17:02.560 this winter, but for next winter, do you pay credence 0:17:02.560 --> 0:17:05.520 to that? Do you feel like crisis averted regardless of 0:17:05.560 --> 0:17:08.440 what happens in Russia and Ukraine and that there has 0:17:08.480 --> 0:17:13.359 been immunization from the conflict. I'd say right now, sure, 0:17:13.480 --> 0:17:16.200 Europe is in a much more comfortable position because it's 0:17:16.200 --> 0:17:18.760 been mild and we have a bunch of energy cargoes 0:17:18.800 --> 0:17:22.200 sitting um waiting to be discharged. But if it does 0:17:22.240 --> 0:17:25.720 get cold, and I really tread to think how people 0:17:25.760 --> 0:17:28.160 can say that next year is going to be fine 0:17:28.200 --> 0:17:30.680 as well. We can get through this winter, assuming it's 0:17:30.680 --> 0:17:34.199 a mild enough winter, no problem. Next year there's a 0:17:34.280 --> 0:17:36.520 huge issue. And by the way, this is much more 0:17:36.520 --> 0:17:39.159 a gas story than an old story um oil. We 0:17:39.240 --> 0:17:42.000 haven't lost Russian or to begin with, So I don't 0:17:42.119 --> 0:17:45.800 understand why even if the talk of ceasefire again instruction 0:17:45.840 --> 0:17:48.120 which we completely disagree with to begin with, but let's 0:17:48.119 --> 0:17:50.960 say it does again credence, how does it affect oil 0:17:51.000 --> 0:17:54.320 because oil wasn't impacted, So why should oils sell off now? 0:17:55.160 --> 0:17:57.639 If you know, even if there is a ceasefire, And 0:17:57.920 --> 0:18:00.560 that's where I think the market is very fused and 0:18:00.560 --> 0:18:03.440 you're just selling getting like suits of just macro sell 0:18:03.480 --> 0:18:06.080 off and oil getting caught in with that one final 0:18:06.160 --> 0:18:09.320 unfair question and then all of a sudden, money costs something, 0:18:09.320 --> 0:18:12.320 the risk free rates legitimate, all of a sudden, the 0:18:12.359 --> 0:18:17.520 investment calculation is like we remember, do you assume there 0:18:17.560 --> 0:18:21.400 will be a boost in energy production? And what politicians 0:18:21.400 --> 0:18:24.040 of all ILK are calling for, which is more production? 0:18:24.440 --> 0:18:30.080 Are you optimistic hydrocarbon producers will produce more at the margin. No, 0:18:30.359 --> 0:18:33.560 And for two simple reasons. One, shareholders continue to tell 0:18:33.600 --> 0:18:36.840 them not to do so and prioritize green energy. And too, 0:18:37.000 --> 0:18:40.119 because interest rates are going up again, servicing debt just 0:18:40.160 --> 0:18:42.520 gets a lot more expensive. This is the other problem 0:18:42.520 --> 0:18:44.240 that we're seeing in the U S. U S. Production 0:18:44.359 --> 0:18:47.480 isn't rising particularly sharply, and I think the market will 0:18:47.520 --> 0:18:51.040 realize this next year. But of course the problem for 0:18:51.080 --> 0:18:54.040 the US is that freight rates have skyrocketed so moving 0:18:54.080 --> 0:18:57.280 that oil has become extremely expensive. And I think that's 0:18:57.280 --> 0:18:59.040 actually good to be a double whammy and way on 0:18:59.160 --> 0:19:02.360 US production. Even Samrita sent thank you so much. Always 0:19:02.359 --> 0:19:05.960 a clinic she is with energy aspects just outstanding as well. 0:19:16.920 --> 0:19:19.200 Duck Cass now on the market's Duck. I loved your 0:19:19.200 --> 0:19:23.320 note where you talked about old stock strategist named Voltaire 0:19:23.960 --> 0:19:25.480 and it's just a point where you have to learn 0:19:25.560 --> 0:19:27.800 to climb on board. How do you climb on board 0:19:27.800 --> 0:19:30.919 a bull market? No one believes in it's rough. I 0:19:30.920 --> 0:19:34.320 mean this has been some year, um. Most investors have 0:19:34.400 --> 0:19:37.920 been beaten up. Fortunately, we had a profitable year a 0:19:37.960 --> 0:19:41.800 hedge run Sea Breeze partners UM. We started the year bearish, 0:19:41.920 --> 0:19:44.879 But the real key to our success this year and 0:19:44.920 --> 0:19:47.560 hopefully in the future is that we're a throwback. We're 0:19:47.640 --> 0:19:51.000 throwback to the original hedge fund A. W. Jones, which 0:19:51.040 --> 0:19:53.560 was formed actually the year I was born. And I 0:19:53.600 --> 0:19:55.320 think the business media spent a lot of time in 0:19:55.359 --> 0:19:59.320 talking about market outlook Tom and Paul, not enough about process. 0:19:59.600 --> 0:20:03.600 What's the process at Sea Breeze if you remember, Unlike 0:20:03.880 --> 0:20:08.600 most investment funds of the day, Jones was created essentially 0:20:09.280 --> 0:20:12.359 along and short long short hedge fund, or as Jones 0:20:12.400 --> 0:20:17.680 called it, a hedged fund UM. So, like Jones, Sea 0:20:17.680 --> 0:20:21.399 Breeze strategy is to balance long positions or bets that 0:20:21.440 --> 0:20:23.480 the security is going to rise in price, with short 0:20:23.520 --> 0:20:28.920 positions that bets security will fall UM. And they introduced 0:20:29.000 --> 0:20:32.880 this approach in order to reduce exposure to market swings 0:20:33.080 --> 0:20:36.560 and create alpha, and certainly relevant today with all the 0:20:36.640 --> 0:20:41.880 economic and market outcomes uncertain they introduced something called pairs trading, 0:20:42.760 --> 0:20:45.320 and I think it seems to be a continued ticket 0:20:45.400 --> 0:20:48.359 or strategy in a period of very sluggish, uncertain and 0:20:48.440 --> 0:20:51.600 uneven growth. And this direction we're taking. By the way, 0:20:51.800 --> 0:20:53.840 you were talking about Taylor Swift. My favorite pair of 0:20:53.880 --> 0:21:00.280 strade is short Taylor Swift and long El Fitzgerald. People. 0:21:00.800 --> 0:21:03.040 If you think about it, if you think about the 0:21:03.119 --> 0:21:06.440 last ten or fifteen years, guys come on ast traditional plane, 0:21:06.480 --> 0:21:09.439 vanilla asset managers come on and they say they do 0:21:09.600 --> 0:21:11.920 all the same thing. They buy the thirty favorite stocks, 0:21:12.160 --> 0:21:14.520 they hold them through hell or high water, they play 0:21:14.560 --> 0:21:17.879 a lot of golf, they acquire more assets their at 0:21:18.200 --> 0:21:21.520 there's not managers. And when the tide went out as 0:21:21.560 --> 0:21:25.720 it did this year, their exposed was swimming naked. Quote 0:21:25.720 --> 0:21:28.320 of the year not seeing teleb love him to death 0:21:28.480 --> 0:21:32.080 and he said gravity is back in physics and years 0:21:32.080 --> 0:21:34.920 in mind Paul's world, the risk free rate is back. 0:21:35.640 --> 0:21:41.000 How does the risk free rate change? Naive long only 0:21:41.359 --> 0:21:45.879 active investment? You know, risk free is a big issue. 0:21:46.560 --> 0:21:51.480