1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,680 Speaker 1: and of course on the Bloomberg Terminal. He writes, Uh, 6 00:00:30,800 --> 00:00:34,360 Speaker 1: the team at pigam PJIM has had a terrific run 7 00:00:34,360 --> 00:00:37,760 Speaker 1: here in the fixed income market because they have been supple, 8 00:00:37,800 --> 00:00:40,960 Speaker 1: they've been able to move, and it's given them a really, 9 00:00:41,280 --> 00:00:44,960 Speaker 1: really interesting track record. Robert Tipp joins us this morning. 10 00:00:45,200 --> 00:00:49,279 Speaker 1: Robert Tip, the basic idea I'm hearing is yields if 11 00:00:49,360 --> 00:00:54,560 Speaker 1: hit the high yield down price up. How opportunistic is 12 00:00:54,600 --> 00:00:57,080 Speaker 1: the first six months of two thousand and twenty two. 13 00:00:57,400 --> 00:00:59,680 Speaker 1: Is it like the one or two other times we've 14 00:00:59,680 --> 00:01:02,880 Speaker 1: seen so it's a great financial crisis where you can 15 00:01:02,960 --> 00:01:08,880 Speaker 1: make total return in bonds. I think that that it is. 16 00:01:09,520 --> 00:01:11,920 Speaker 1: I think it's a matter of what the relative benchmark is. 17 00:01:12,280 --> 00:01:15,200 Speaker 1: We've we've passed the peak in in long term yields, 18 00:01:15,360 --> 00:01:17,760 Speaker 1: and we're probably passing the peak in in the front 19 00:01:17,880 --> 00:01:21,800 Speaker 1: end for yields now and the return on the bond 20 00:01:21,840 --> 00:01:24,320 Speaker 1: market is likely to exceed cash. We're likely to stay 21 00:01:24,480 --> 00:01:27,520 Speaker 1: range bound, kind of centered around where we are right now, 22 00:01:27,600 --> 00:01:29,920 Speaker 1: and so I think traders are going to have to 23 00:01:29,959 --> 00:01:33,640 Speaker 1: be very skilled at trading that range. Investors are going 24 00:01:33,680 --> 00:01:36,640 Speaker 1: to have a much easier time. That's the lesson from 25 00:01:36,680 --> 00:01:40,640 Speaker 1: the past papers. That's the lesson from the earlier analogs 26 00:01:40,640 --> 00:01:44,040 Speaker 1: and history that are like this environment we're in right now. 27 00:01:44,080 --> 00:01:45,959 Speaker 1: My two calls there the long gun. I've heard that 28 00:01:46,000 --> 00:01:48,160 Speaker 1: call from you before. It was months ago and it's 29 00:01:48,160 --> 00:01:49,760 Speaker 1: turned out to be right gunt in two year end. 30 00:01:49,760 --> 00:01:51,360 Speaker 1: Do you think the highs on a ten year behind 31 00:01:51,440 --> 00:01:53,600 Speaker 1: us right now? We're well south of where we were 32 00:01:53,600 --> 00:01:55,400 Speaker 1: at the highs of the year in Q one, pushing 33 00:01:55,480 --> 00:01:57,560 Speaker 1: one eight at south of one four to you just 34 00:01:57,600 --> 00:01:59,840 Speaker 1: said that maybe the peak at the front end might 35 00:01:59,880 --> 00:02:03,160 Speaker 1: have behind us as well, But why right, yeah, I 36 00:02:03,200 --> 00:02:05,400 Speaker 1: think so for for yields out to like your three 37 00:02:05,440 --> 00:02:08,400 Speaker 1: year point for now, and then once you get twelve 38 00:02:08,440 --> 00:02:11,080 Speaker 1: months down the road, if it turns out, you know, 39 00:02:11,120 --> 00:02:13,840 Speaker 1: we're in that part of the probability spectrum of very 40 00:02:13,880 --> 00:02:17,919 Speaker 1: strong economy, inflation staying high. Uh fat is really hiking 41 00:02:18,000 --> 00:02:20,480 Speaker 1: rates three times. Next year you're gonna have a stare 42 00:02:20,520 --> 00:02:23,680 Speaker 1: step higher in the front end. But for now you're 43 00:02:23,720 --> 00:02:25,920 Speaker 1: at that point where the fat has really shot all 44 00:02:25,960 --> 00:02:29,880 Speaker 1: their bullets. They announced taper in November. Within a month 45 00:02:30,000 --> 00:02:34,720 Speaker 1: basically an inter meeting move right to accelerate the taper, 46 00:02:34,760 --> 00:02:40,440 Speaker 1: which is really raises some questions. And the market has 47 00:02:40,680 --> 00:02:42,799 Speaker 1: has moved on a one year one year basis and 48 00:02:42,919 --> 00:02:45,359 Speaker 1: o I s so on average, where will the funds 49 00:02:45,560 --> 00:02:49,520 Speaker 1: rate be on average over the year, you know, from 50 00:02:49,639 --> 00:02:52,480 Speaker 1: point one years out to the point one year to 51 00:02:52,560 --> 00:02:56,160 Speaker 1: two years out over one percent. That's a lot of 52 00:02:56,240 --> 00:02:58,799 Speaker 1: rate hikes price in there. So now the market has 53 00:02:58,840 --> 00:03:01,720 Speaker 1: to sit and wagh and I think it's unlikely they're 54 00:03:01,720 --> 00:03:04,480 Speaker 1: going to push those bets further on the front end 55 00:03:04,480 --> 00:03:06,720 Speaker 1: of the curve. Robot think this is such a fascinating 56 00:03:06,760 --> 00:03:08,840 Speaker 1: moment because the likes of Deutsche Bank are asking a 57 00:03:08,960 --> 00:03:12,000 Speaker 1: question of the weekend last week into this week, how 58 00:03:12,080 --> 00:03:13,640 Speaker 1: much work they need to do. Maybe they need to 59 00:03:13,639 --> 00:03:16,639 Speaker 1: go even higher to tighten in an economy like this one. 60 00:03:17,040 --> 00:03:20,160 Speaker 1: And you're saying they've shuttle their bullets already and they 61 00:03:20,200 --> 00:03:23,240 Speaker 1: haven't even really done anything yet. Robert, can you square 62 00:03:23,360 --> 00:03:27,720 Speaker 1: reconcile what that debate sounds like from from your perspective, right, 63 00:03:27,800 --> 00:03:31,040 Speaker 1: I mean, could be wrong on this, but you know, 64 00:03:31,120 --> 00:03:34,720 Speaker 1: from from our perspective, the way this goes is by 65 00:03:34,760 --> 00:03:38,160 Speaker 1: the time they have the information set to project the 66 00:03:38,240 --> 00:03:41,040 Speaker 1: rate hikes that the FED is projecting to have the 67 00:03:41,120 --> 00:03:44,440 Speaker 1: nerve to do the taper. Look at where we were 68 00:03:44,600 --> 00:03:48,080 Speaker 1: at the end of December when they announced the taper 69 00:03:48,160 --> 00:03:53,280 Speaker 1: to begin in January, You're at three. By the time 70 00:03:53,320 --> 00:03:55,360 Speaker 1: the Fed got around to hiking interest rates at the 71 00:03:55,440 --> 00:03:59,360 Speaker 1: end of you're at two point on the tenure, you 72 00:03:59,360 --> 00:04:03,160 Speaker 1: had a big By the time just before they were 73 00:04:03,200 --> 00:04:06,640 Speaker 1: ready to really you know, get into the motive heights in, 74 00:04:08,080 --> 00:04:11,400 Speaker 1: you were in the low ones. So you're in a 75 00:04:11,520 --> 00:04:13,640 Speaker 1: very dangerous period where the feed is going to be 76 00:04:13,680 --> 00:04:18,760 Speaker 1: an awake time. Uh. They've accelerated the taper against the 77 00:04:18,839 --> 00:04:22,680 Speaker 1: backdrop of going into flu season, of the vacs, of 78 00:04:22,800 --> 00:04:28,320 Speaker 1: a new variant hitting of oil prices fawling. Uh. And 79 00:04:28,760 --> 00:04:32,640 Speaker 1: uh you know so uh you know that. I mean, 80 00:04:32,680 --> 00:04:34,919 Speaker 1: they did get one higher inflation number. But you also 81 00:04:35,960 --> 00:04:38,480 Speaker 1: speak because I think this is so critical. Do you 82 00:04:38,520 --> 00:04:42,120 Speaker 1: see the risk of a Discember eighteen repeat? We're just 83 00:04:42,160 --> 00:04:44,039 Speaker 1: talking about it. This time around, they didn't have to 84 00:04:44,040 --> 00:04:46,240 Speaker 1: back away from getting anywhere close to what people are 85 00:04:46,279 --> 00:04:50,320 Speaker 1: talking about. I think that that power was on the 86 00:04:50,440 --> 00:04:53,200 Speaker 1: right track of trying to keep the markets away from that. 87 00:04:53,560 --> 00:04:55,520 Speaker 1: He was trying to focus on the here and now. 88 00:04:56,320 --> 00:04:59,160 Speaker 1: Uh And now they've lost that narrative a little bit. 89 00:04:59,279 --> 00:05:02,960 Speaker 1: You've seen two weeks of stocks falling and yields falling. 90 00:05:03,320 --> 00:05:06,200 Speaker 1: So I'm assuming that there's been a learning curve and 91 00:05:06,240 --> 00:05:08,560 Speaker 1: that he's going to see that and he's going to 92 00:05:08,600 --> 00:05:11,159 Speaker 1: corral the committee and say, you know, if we want 93 00:05:11,160 --> 00:05:14,320 Speaker 1: to have the flexibility to raise rates next year, if 94 00:05:14,320 --> 00:05:17,000 Speaker 1: we think that's appropriate, we have to keep the markets 95 00:05:17,120 --> 00:05:21,880 Speaker 1: on track, that we are pro grow with stable inflation, 96 00:05:22,560 --> 00:05:24,960 Speaker 1: and that we're not going to have an imbalanced reaction 97 00:05:25,120 --> 00:05:27,400 Speaker 1: as opposed to last time, which was, you know, we 98 00:05:27,440 --> 00:05:29,880 Speaker 1: have a long way to go to neutral. How to 99 00:05:29,960 --> 00:05:31,880 Speaker 1: freak the market out? How do you think the FETE 100 00:05:31,920 --> 00:05:34,159 Speaker 1: is factoring in the fiscal equation? Obviously we don't know 101 00:05:34,240 --> 00:05:36,240 Speaker 1: what the final form of the buildback Better plan will 102 00:05:36,240 --> 00:05:38,440 Speaker 1: actually look like, if it will even get past early 103 00:05:38,520 --> 00:05:40,920 Speaker 1: next year. But if it does, and there's an inflationary 104 00:05:40,960 --> 00:05:42,880 Speaker 1: aspect to you that does that force the feed's hand 105 00:05:42,880 --> 00:05:46,880 Speaker 1: to some extent. Well, I think actually the fiscal is 106 00:05:46,920 --> 00:05:50,000 Speaker 1: another factor that I would have put on the economically 107 00:05:50,120 --> 00:05:53,599 Speaker 1: negative sides. Right. It's not that we are having a 108 00:05:53,600 --> 00:05:56,680 Speaker 1: little bit of stimulus kick in presumably in the years 109 00:05:56,680 --> 00:05:59,080 Speaker 1: they had based on these programs that are passing. Now, 110 00:05:59,720 --> 00:06:02,800 Speaker 1: the out the government will be spending through these programs 111 00:06:03,000 --> 00:06:05,320 Speaker 1: is so much less than what we had in years 112 00:06:05,400 --> 00:06:09,039 Speaker 1: past that effectively growth has been inflated over the last 113 00:06:09,080 --> 00:06:11,040 Speaker 1: couple of years by a couple of things. One is 114 00:06:11,080 --> 00:06:14,200 Speaker 1: the fiscal and then a related item of that, which 115 00:06:14,320 --> 00:06:18,719 Speaker 1: was a spending down of the high savings rate that 116 00:06:18,720 --> 00:06:22,520 Speaker 1: that generated. So I think it's great. I mean, I 117 00:06:22,560 --> 00:06:26,719 Speaker 1: think in terms of growth, that should cushion the deceleration 118 00:06:26,760 --> 00:06:29,640 Speaker 1: and growth that you'd otherwise get. But it's not a 119 00:06:29,680 --> 00:06:31,960 Speaker 1: big step up on the pistol side. It's a step down. 120 00:06:32,240 --> 00:06:35,040 Speaker 1: Roberts Hip. That was a clinic send on best to 121 00:06:35,120 --> 00:06:38,039 Speaker 1: correct and mind roberts Hippi for a page, Jim, Thank you, sir, 122 00:06:38,120 --> 00:06:46,880 Speaker 1: Thank you very much. Right now, with special ability. Sarah 123 00:06:46,920 --> 00:06:50,039 Speaker 1: House is senior economist at Will's Fargo out of Tulane, 124 00:06:50,040 --> 00:06:54,080 Speaker 1: and far more importantly with active work in the measurement 125 00:06:54,320 --> 00:06:57,400 Speaker 1: of what we do in America. Sarah House in your 126 00:06:57,400 --> 00:07:00,560 Speaker 1: books at Tulane and anything I've ever read, we've never 127 00:07:00,640 --> 00:07:04,000 Speaker 1: had a China like economy. Is a nine percent or 128 00:07:04,080 --> 00:07:08,800 Speaker 1: dare I say ten percent nominal g d P healthy 129 00:07:09,040 --> 00:07:13,880 Speaker 1: for America? Well, I don't think it's as healthy as 130 00:07:14,080 --> 00:07:16,920 Speaker 1: as we would typically see. I mean, I think overall, 131 00:07:17,040 --> 00:07:19,800 Speaker 1: these are good problems of the US is having right now, 132 00:07:19,800 --> 00:07:23,520 Speaker 1: where what's getting us to practically a double digit pace 133 00:07:23,560 --> 00:07:27,400 Speaker 1: of nominal GDP is inflation. But that comes down I 134 00:07:27,440 --> 00:07:31,120 Speaker 1: think a lot to this such strong demand that we've seen, 135 00:07:31,200 --> 00:07:33,280 Speaker 1: and so I think some of the problems we say 136 00:07:33,520 --> 00:07:35,680 Speaker 1: we are seeing right now again, these these are in 137 00:07:35,720 --> 00:07:39,280 Speaker 1: many ways good problems, but I think ultimately unsustainable, and 138 00:07:39,320 --> 00:07:41,920 Speaker 1: that's why we expect growth to moderate over the course 139 00:07:41,920 --> 00:07:45,880 Speaker 1: of the upcoming year. Well, it's going to moderate through 140 00:07:45,920 --> 00:07:48,720 Speaker 1: the upcoming year? Does a FED? I mean, the FED 141 00:07:49,000 --> 00:07:54,520 Speaker 1: has to respond to nine nominal GDP right, Well, I 142 00:07:54,560 --> 00:07:57,720 Speaker 1: think we've certainly seen that that shift where they've in 143 00:07:57,760 --> 00:08:00,360 Speaker 1: many ways. I think the October CPI was awake call 144 00:08:00,480 --> 00:08:04,080 Speaker 1: that this inflation environment is going to be somewhat longer 145 00:08:04,160 --> 00:08:07,000 Speaker 1: lasting than they anticipated. And I think more importantly than 146 00:08:07,040 --> 00:08:09,880 Speaker 1: just the curation, it's the magnitude. So we're looking at 147 00:08:09,880 --> 00:08:12,880 Speaker 1: seven percent c P I come Q one, and so 148 00:08:12,920 --> 00:08:15,280 Speaker 1: I think we we have seen the Fed realize that 149 00:08:15,400 --> 00:08:19,800 Speaker 1: in order for inflation expectations to remain close to two percent, 150 00:08:19,920 --> 00:08:21,960 Speaker 1: that they do have to to make adjustments. And I 151 00:08:21,960 --> 00:08:24,160 Speaker 1: think we'll see that very soon. I mean, John, what 152 00:08:24,200 --> 00:08:27,200 Speaker 1: does Corporate America do with this? If they've got nine percent, 153 00:08:27,600 --> 00:08:30,000 Speaker 1: They've got a company growing at three or four or 154 00:08:30,000 --> 00:08:32,800 Speaker 1: five percent revenue growth is going to show eight or 155 00:08:32,880 --> 00:08:35,840 Speaker 1: nine percent revenue growth. They have to adapt to that. 156 00:08:36,040 --> 00:08:38,440 Speaker 1: They've done that this year. They've done pretty well, haven't they. 157 00:08:38,440 --> 00:08:41,280 Speaker 1: Looking forward, let's put all this together. A seven handle 158 00:08:41,320 --> 00:08:43,520 Speaker 1: on c P I. You're looking for that in Q one, 159 00:08:43,520 --> 00:08:45,080 Speaker 1: and we could come close to it a little bit 160 00:08:45,160 --> 00:08:47,040 Speaker 1: later this week. You're looking for six point nine percent. 161 00:08:47,400 --> 00:08:49,920 Speaker 1: Deutsche Bank said the following, Sarah, I'd love your response 162 00:08:50,000 --> 00:08:52,200 Speaker 1: to it. Surely more than a hundred and fifty basis 163 00:08:52,240 --> 00:08:55,280 Speaker 1: points of tightening and needed to slow down eleven percent 164 00:08:55,360 --> 00:08:59,400 Speaker 1: nominal GDP growth to a more sustainable four Sarah, this 165 00:08:59,440 --> 00:09:01,600 Speaker 1: is the conversation and we're having at the moment liftoff 166 00:09:01,600 --> 00:09:04,160 Speaker 1: to one thing. How much timing do we need to 167 00:09:04,280 --> 00:09:07,880 Speaker 1: actually slow down this economy? That is a good question, 168 00:09:07,880 --> 00:09:10,079 Speaker 1: and I think it depends on when it starts. So 169 00:09:10,120 --> 00:09:12,520 Speaker 1: the earlier the FEDS starts, the less tightening we will 170 00:09:12,559 --> 00:09:15,120 Speaker 1: ultimately have to see. But I think it's important to 171 00:09:15,160 --> 00:09:18,080 Speaker 1: remember some of the momentum that's already in trained. So 172 00:09:18,120 --> 00:09:20,280 Speaker 1: we are getting further away from some of this fiscal 173 00:09:20,320 --> 00:09:25,400 Speaker 1: support that really did super supercharge growth and inflation this 174 00:09:25,480 --> 00:09:27,440 Speaker 1: past year, and so I think the tricky thing for 175 00:09:27,440 --> 00:09:30,120 Speaker 1: the FED is that they're most likely to be hiking 176 00:09:30,200 --> 00:09:33,360 Speaker 1: into a slowing economy, and so I think there's still 177 00:09:33,360 --> 00:09:36,200 Speaker 1: a lot of uncertainty about how high ultimately rates have 178 00:09:36,320 --> 00:09:38,480 Speaker 1: to go. But I think what we've seen is the 179 00:09:38,559 --> 00:09:41,760 Speaker 1: FED shifting towards painting that picture and kind of laying 180 00:09:41,800 --> 00:09:44,160 Speaker 1: the groundwork for a faster taper, so they have the 181 00:09:44,200 --> 00:09:47,440 Speaker 1: options to raise rates earlier, so ultimately they might not 182 00:09:47,520 --> 00:09:50,360 Speaker 1: have to raise them quite as as high. You talk 183 00:09:50,400 --> 00:09:52,480 Speaker 1: about a slowing economy, is there a risk that that 184 00:09:52,520 --> 00:09:54,920 Speaker 1: will be exacerbated by the omicron variant? Have you been 185 00:09:54,960 --> 00:09:58,440 Speaker 1: able to model that out at all? So there's still 186 00:09:58,480 --> 00:10:01,079 Speaker 1: so much unknown about AM and cron on that we 187 00:10:01,280 --> 00:10:04,280 Speaker 1: haven't modeled it out in terms of what that's going 188 00:10:04,320 --> 00:10:07,040 Speaker 1: to do to our Our upcoming GDP numbers are our 189 00:10:07,120 --> 00:10:10,160 Speaker 1: inflation numbers, I think when we think of it in 190 00:10:10,200 --> 00:10:12,720 Speaker 1: the directional sense, so it has the chance to dampen 191 00:10:12,800 --> 00:10:17,000 Speaker 1: GDP but intensify these supply chains. So UM might revive 192 00:10:17,080 --> 00:10:19,920 Speaker 1: some of those stacklationary debates that we had in the 193 00:10:20,000 --> 00:10:22,800 Speaker 1: third quarter that I think ultimately we've seen that with 194 00:10:22,880 --> 00:10:26,680 Speaker 1: each successive wave, the impact of the economy has weekended. 195 00:10:26,720 --> 00:10:31,000 Speaker 1: So businesses have been incredibly successful at adapting to this environment. 196 00:10:31,280 --> 00:10:34,080 Speaker 1: Consumers are growing more comfortable, We have more tools in 197 00:10:34,200 --> 00:10:39,120 Speaker 1: order to still carry on with our lives, whether that's vaccinations, boosters, therapeutics, 198 00:10:39,200 --> 00:10:41,840 Speaker 1: and just a great dose of COVID fatigue. And so 199 00:10:41,880 --> 00:10:46,240 Speaker 1: I think unless we see some some really material um 200 00:10:46,440 --> 00:10:49,560 Speaker 1: and scary headlines coming out of Omicron right now, we 201 00:10:49,600 --> 00:10:52,199 Speaker 1: don't think that it's going to have a massive impact 202 00:10:52,320 --> 00:10:54,680 Speaker 1: or really even a major done in terms of the 203 00:10:54,679 --> 00:10:57,400 Speaker 1: trajectory of the near termois economy. So you don't think 204 00:10:57,440 --> 00:10:59,840 Speaker 1: the Omicron variant or even that mixed paper rolls report 205 00:10:59,880 --> 00:11:01,840 Speaker 1: we on on Friday, would give the FED some cover 206 00:11:02,040 --> 00:11:05,680 Speaker 1: to punt until I think it gives them a little 207 00:11:05,720 --> 00:11:07,320 Speaker 1: bit of cover if they want to take it, but 208 00:11:07,440 --> 00:11:09,720 Speaker 1: I don't necessarily think they will. As I mentioned, we 209 00:11:09,760 --> 00:11:13,079 Speaker 1: saw beneficials really since that November meeting lay in the 210 00:11:13,120 --> 00:11:16,319 Speaker 1: groundwork for potentially an even faster taper as early as 211 00:11:16,320 --> 00:11:18,640 Speaker 1: its meeting next week. And so I think when you 212 00:11:18,679 --> 00:11:20,920 Speaker 1: look at what happened with the household survey, so the 213 00:11:20,920 --> 00:11:23,640 Speaker 1: fact that we've seen the unemployment rate declined a full 214 00:11:23,679 --> 00:11:26,480 Speaker 1: percentage point just over the over the past three months, 215 00:11:26,520 --> 00:11:29,000 Speaker 1: we're staring, you know, pretty close to what the FED 216 00:11:29,080 --> 00:11:32,040 Speaker 1: considers full employment over the long term. And of course, 217 00:11:32,120 --> 00:11:34,560 Speaker 1: we still have this inflation issue that is not going 218 00:11:34,600 --> 00:11:37,360 Speaker 1: away anytime soon and is actually going to get worse 219 00:11:37,400 --> 00:11:40,400 Speaker 1: before it gets better. I think that, um, I think 220 00:11:40,480 --> 00:11:42,800 Speaker 1: that well, the Fed might be able to spin it. 221 00:11:43,120 --> 00:11:46,800 Speaker 1: I think ultimately that that they'll most likely probably go 222 00:11:46,840 --> 00:11:49,800 Speaker 1: ahead and accelerate the taper here soon. And now, folks 223 00:11:49,800 --> 00:11:52,560 Speaker 1: on radio and television, the dumb question of the morning, 224 00:11:52,600 --> 00:11:55,280 Speaker 1: I'll take that one, Sarah, I'm looking at, you know, 225 00:11:55,600 --> 00:11:59,960 Speaker 1: unemployment in Nebraska. You're Louisiana. And then I'm sorry, we're 226 00:12:00,040 --> 00:12:03,880 Speaker 1: almost back to February of two thousand twenty. Is this 227 00:12:03,920 --> 00:12:09,480 Speaker 1: American economy back to February of two thousand twenty. I 228 00:12:09,559 --> 00:12:12,959 Speaker 1: think in the aggregate you could say that it's it's 229 00:12:12,960 --> 00:12:16,600 Speaker 1: getting pretty close. Of course, there's tremendous variation where we've 230 00:12:16,600 --> 00:12:19,080 Speaker 1: seen the growth is so different from where it would 231 00:12:19,120 --> 00:12:22,160 Speaker 1: have been expected. So if you look at goods versus services, 232 00:12:22,200 --> 00:12:24,680 Speaker 1: for for example, I think there's still a lot of 233 00:12:24,760 --> 00:12:26,920 Speaker 1: questions when we look at the unemployment and the labor 234 00:12:27,000 --> 00:12:29,880 Speaker 1: market is to what extent workers come back. We saw 235 00:12:29,960 --> 00:12:33,040 Speaker 1: some fine of that with the November jobs report. There's 236 00:12:33,080 --> 00:12:36,000 Speaker 1: still a lot of questions, particularly over older workers those 237 00:12:36,160 --> 00:12:40,240 Speaker 1: retirement age. Are those retirements actually permanent or do they 238 00:12:40,240 --> 00:12:42,800 Speaker 1: come back? But ultimately I think we are barreling very 239 00:12:42,880 --> 00:12:46,880 Speaker 1: quickly towards full employment, and that's also pushing the FED 240 00:12:46,920 --> 00:12:50,040 Speaker 1: towards this more hawk is toad. It's not just inflationists 241 00:12:50,080 --> 00:12:52,880 Speaker 1: that we are seeing the labor market rapidly tighten, and 242 00:12:53,000 --> 00:12:56,800 Speaker 1: those two mandates are in less tension. John Sarah earlier 243 00:12:57,200 --> 00:12:59,880 Speaker 1: took some Barclays doom and blow them, and Barclays pushed 244 00:12:59,880 --> 00:13:03,080 Speaker 1: against the doom and gloom and said they're optimistic. Why 245 00:13:03,080 --> 00:13:07,640 Speaker 1: are we so angst ridden about a wonderfully buoyant American 246 00:13:07,800 --> 00:13:12,240 Speaker 1: economy or is it normal to have OMG fears? Is 247 00:13:12,440 --> 00:13:16,800 Speaker 1: we actually do pretty well? So I think it's it's 248 00:13:16,880 --> 00:13:21,600 Speaker 1: natural to be perhaps more more conservative, or at least 249 00:13:21,880 --> 00:13:24,960 Speaker 1: um more tune shoot to the downside risks than perhaps 250 00:13:25,040 --> 00:13:28,040 Speaker 1: that upside risk. I think the inflation backdrop right now 251 00:13:28,320 --> 00:13:31,440 Speaker 1: is is in many ways driving this. So even if 252 00:13:31,480 --> 00:13:34,640 Speaker 1: if you look at the fact that UM labor income 253 00:13:34,760 --> 00:13:37,000 Speaker 1: is up ten and a half percent over over the year, 254 00:13:37,080 --> 00:13:39,360 Speaker 1: that gets lost in this conversation of you know, six 255 00:13:39,440 --> 00:13:44,120 Speaker 1: percent plus inflation, so nobody really likes UM that the 256 00:13:44,160 --> 00:13:46,800 Speaker 1: actual numbers change is very hard for households and businesses 257 00:13:46,800 --> 00:13:49,320 Speaker 1: to plan, and so I think that overrides this this 258 00:13:49,400 --> 00:13:52,000 Speaker 1: underlying real growth story that we continue to see very 259 00:13:52,000 --> 00:13:55,440 Speaker 1: strong for you guys on radio, Sarah House has a 260 00:13:55,520 --> 00:13:58,440 Speaker 1: perfect Christmas tree, John, Is your Christmas tree that nice? 261 00:13:58,720 --> 00:14:00,800 Speaker 1: It doesn't have to stole until up. If we're rating 262 00:14:00,840 --> 00:14:03,200 Speaker 1: this Christmas tree, I have to say extra marks for 263 00:14:03,240 --> 00:14:05,360 Speaker 1: the star on top. It's very difficult to balance the 264 00:14:05,400 --> 00:14:08,480 Speaker 1: star on the topic. You've got, John, You've got a 265 00:14:08,559 --> 00:14:11,160 Speaker 1: C Milan something up top. You know. I have a 266 00:14:11,160 --> 00:14:13,480 Speaker 1: little ac Milan mascot on top of the Christmas tree. 267 00:14:13,840 --> 00:14:18,000 Speaker 1: That's right, Sarah, thank you, House of West Farca. That's Christmas. 268 00:14:18,040 --> 00:14:20,240 Speaker 1: It's not allowed. The Christmas tree Tom to distract us 269 00:14:20,240 --> 00:14:23,200 Speaker 1: from a really interesting call from Sarah House six nine 270 00:14:23,200 --> 00:14:26,080 Speaker 1: on CPI this on they're looking for a seven handle 271 00:14:26,560 --> 00:14:35,680 Speaker 1: for the first quarter. We stopped the show and we 272 00:14:35,760 --> 00:14:38,720 Speaker 1: do that with William Lee. He is chief economist at Milking, 273 00:14:38,840 --> 00:14:43,040 Speaker 1: but far more truly expert for the International Monetary Fund 274 00:14:43,680 --> 00:14:48,440 Speaker 1: on the Pacific RIM and China. Bill Lee, what do 275 00:14:48,600 --> 00:14:53,040 Speaker 1: we get wrong in the United States of our stereotypes 276 00:14:53,760 --> 00:14:57,640 Speaker 1: of what we think of is Jonathan Spencer's ancient China, 277 00:14:58,360 --> 00:15:00,760 Speaker 1: the World War Two China, or what do we get 278 00:15:00,760 --> 00:15:04,880 Speaker 1: wrong about present day China. We have this image of 279 00:15:04,960 --> 00:15:08,360 Speaker 1: China as a monolithic behemoth that is moving in unison, 280 00:15:08,600 --> 00:15:10,960 Speaker 1: and I think that's far from the case. Right now. 281 00:15:11,200 --> 00:15:14,080 Speaker 1: There's a huge amount of debate and dissension within China 282 00:15:14,400 --> 00:15:16,880 Speaker 1: as the how to sustain growth, how to manage the 283 00:15:16,920 --> 00:15:20,880 Speaker 1: property crisis they have there at the same time inspire 284 00:15:20,920 --> 00:15:23,200 Speaker 1: the people to go out and spend in the light 285 00:15:23,240 --> 00:15:25,960 Speaker 1: of their COVID shutdown policies. There's a lot of tension 286 00:15:25,960 --> 00:15:28,600 Speaker 1: going on there and the UH and and even as 287 00:15:28,640 --> 00:15:31,640 Speaker 1: we talk about our fiscal finances, there's has come to 288 00:15:31,760 --> 00:15:35,280 Speaker 1: home to roosts and spades. China has to finance their 289 00:15:35,440 --> 00:15:39,160 Speaker 1: their state local governments with property sales. They need construction 290 00:15:39,440 --> 00:15:41,960 Speaker 1: to sustain the GDP targets. At the same time they 291 00:15:42,040 --> 00:15:43,840 Speaker 1: got a rate in debt, they've got a rate in 292 00:15:44,080 --> 00:15:46,960 Speaker 1: a lot of credit growth. I have a really great 293 00:15:46,960 --> 00:15:49,360 Speaker 1: respect for what Foreign Affairs has done on this, and 294 00:15:49,400 --> 00:15:52,200 Speaker 1: particularly Daniel Kurtz fail and of course his expertise on 295 00:15:52,320 --> 00:15:56,720 Speaker 1: George Marshall and China. Only what I hear from experts 296 00:15:56,920 --> 00:16:00,360 Speaker 1: is the monolithic view of President g is just flat 297 00:16:00,360 --> 00:16:06,720 Speaker 1: out wrong. How powerful is the Beijing leader? He's become 298 00:16:06,840 --> 00:16:09,480 Speaker 1: more powerful. I think that's the key message that's gonna 299 00:16:09,480 --> 00:16:12,160 Speaker 1: come out of the next People's Congress. Uh Ji Jinping 300 00:16:12,280 --> 00:16:14,600 Speaker 1: has done what no only to other leaders in China 301 00:16:14,640 --> 00:16:18,320 Speaker 1: done Mausey dong and doping. He has become declared horror leader. 302 00:16:18,600 --> 00:16:20,720 Speaker 1: And in doing that, he's he's essentially gotten rid of 303 00:16:20,720 --> 00:16:24,200 Speaker 1: all of his opposition. His his anti corruption policies have 304 00:16:24,320 --> 00:16:27,080 Speaker 1: really gotten rid of any kind of of of challenge 305 00:16:27,120 --> 00:16:30,760 Speaker 1: those leadership, and his strategy is to consolidate by telling 306 00:16:30,800 --> 00:16:33,280 Speaker 1: the people of China. The Communist Party is going to 307 00:16:33,360 --> 00:16:37,280 Speaker 1: deliver them safety, growth and in a better way of 308 00:16:37,320 --> 00:16:40,720 Speaker 1: life by doing what Mound died, which is to say, 309 00:16:40,760 --> 00:16:44,920 Speaker 1: turn domestic, turned inward to sources of growth as sources 310 00:16:44,960 --> 00:16:47,080 Speaker 1: of of of export growth. And I think that he's 311 00:16:47,080 --> 00:16:50,120 Speaker 1: gonna try to tell the world we will be a 312 00:16:50,160 --> 00:16:52,680 Speaker 1: major power handle as as such. But at w t 313 00:16:52,800 --> 00:16:54,880 Speaker 1: O he's also saying we're also an emerging market. We 314 00:16:54,880 --> 00:16:57,040 Speaker 1: want the advantages of being an emerging market. A lot 315 00:16:57,040 --> 00:16:58,840 Speaker 1: of tensions there, but we just want to jump in. 316 00:16:58,960 --> 00:17:01,960 Speaker 1: With a stock move, slid down by three percentage points 317 00:17:02,000 --> 00:17:04,000 Speaker 1: in a pre market some headlines crossing Katie, what do 318 00:17:04,080 --> 00:17:07,520 Speaker 1: you see, Well, it's apportedly an SEC investigation that has 319 00:17:07,520 --> 00:17:09,399 Speaker 1: been opened. This is according to a report from Rutters. 320 00:17:09,440 --> 00:17:11,600 Speaker 1: You are seeing the subsequent move in Tesla shares and 321 00:17:11,640 --> 00:17:14,360 Speaker 1: we understand from Reuters that this is probe is overclaims 322 00:17:14,400 --> 00:17:18,600 Speaker 1: on solar panel defects, so related to that Solar City acquisition. 323 00:17:18,840 --> 00:17:21,280 Speaker 1: I'm assuming, but we will continue to monitor Tesla. Of course, 324 00:17:21,520 --> 00:17:23,879 Speaker 1: we can't shake that off, can they. That's the Royteous report. 325 00:17:23,960 --> 00:17:26,359 Speaker 1: Stocks down about three percent. We'll revisit that ended a 326 00:17:26,359 --> 00:17:28,359 Speaker 1: bit later. In the morning, I'm blowing back TV and radio, 327 00:17:28,400 --> 00:17:30,040 Speaker 1: But I want to return to the leader of the 328 00:17:30,119 --> 00:17:33,320 Speaker 1: Chinese Communist Party and trying to understand from your perspective 329 00:17:33,720 --> 00:17:35,879 Speaker 1: how much strength he actually has in China right now, 330 00:17:35,880 --> 00:17:38,840 Speaker 1: because on the outside looking again, we see these lifelong 331 00:17:39,000 --> 00:17:41,560 Speaker 1: term limits for the Chinese leader, and then we try 332 00:17:41,560 --> 00:17:43,440 Speaker 1: and figure out how much strength, how much control he 333 00:17:43,560 --> 00:17:47,320 Speaker 1: actually has, Bill, how much control does he have a 334 00:17:47,440 --> 00:17:50,520 Speaker 1: tension between what he does at the federal level, uh 335 00:17:50,600 --> 00:17:53,560 Speaker 1: and and what powered Beijing could exerve and what the 336 00:17:53,600 --> 00:17:56,280 Speaker 1: local authorities are able to implement are are really two 337 00:17:56,320 --> 00:17:59,760 Speaker 1: different things. The local authorities are caught in this place 338 00:17:59,760 --> 00:18:02,080 Speaker 1: where they need revenues, so they've got to sell a 339 00:18:02,080 --> 00:18:05,400 Speaker 1: lot of property. Beijing wants to crack down on property 340 00:18:05,440 --> 00:18:09,120 Speaker 1: companies are expanding credit too much, and and they need 341 00:18:09,160 --> 00:18:12,240 Speaker 1: to cut down on properly being the only source of 342 00:18:12,280 --> 00:18:16,520 Speaker 1: savings for the people of China. So the fiscal authorities 343 00:18:16,560 --> 00:18:19,800 Speaker 1: have to expand the portfolio assets available. The local state 344 00:18:19,840 --> 00:18:23,280 Speaker 1: local authorities want the property market to be the core 345 00:18:23,400 --> 00:18:26,120 Speaker 1: place that that that they will get their financing from. 346 00:18:26,720 --> 00:18:29,040 Speaker 1: Lots of problems there. What I've always found amazing, Bill, 347 00:18:29,119 --> 00:18:31,320 Speaker 1: is how much faith confidence they seem to have in 348 00:18:31,359 --> 00:18:33,679 Speaker 1: the Chinese policymaker when they make a move and do 349 00:18:33,800 --> 00:18:36,120 Speaker 1: things like this, that China has control that they can 350 00:18:36,160 --> 00:18:37,920 Speaker 1: let some of the steam out and then they can 351 00:18:37,920 --> 00:18:40,960 Speaker 1: support things again, tap the brake, support things again, keep 352 00:18:41,000 --> 00:18:43,000 Speaker 1: doing it over and over again without making a mistake. 353 00:18:43,160 --> 00:18:44,880 Speaker 1: But as you look at things, what is the risk 354 00:18:44,880 --> 00:18:48,000 Speaker 1: of a policy mistake as they try and engineer the 355 00:18:48,040 --> 00:18:50,679 Speaker 1: inevitable self landing that is nearly always around the corner 356 00:18:50,920 --> 00:18:54,200 Speaker 1: for China. When has it become something something else, something 357 00:18:54,240 --> 00:18:56,760 Speaker 1: to worry about? But what does that look like? Keep 358 00:18:56,760 --> 00:18:58,439 Speaker 1: an eye on what they've just done. They did a 359 00:18:58,440 --> 00:19:01,320 Speaker 1: triple our cut, right they they they've cut the reserve requirements, 360 00:19:01,520 --> 00:19:05,480 Speaker 1: which in the most mostly compous to say, that's expansionary. 361 00:19:05,640 --> 00:19:07,840 Speaker 1: That's gonna expand the growth of credit. At the same time, 362 00:19:07,880 --> 00:19:10,640 Speaker 1: I just told you they're trying to de leverage like crazy. Now, 363 00:19:10,680 --> 00:19:12,560 Speaker 1: how they're going to pull that off is something that's 364 00:19:12,600 --> 00:19:14,800 Speaker 1: that's sort of important because they also have to accept 365 00:19:14,800 --> 00:19:16,800 Speaker 1: that China's growth harget is going to have to reduce 366 00:19:17,040 --> 00:19:19,600 Speaker 1: down to five percent or even below five percent plus 367 00:19:19,720 --> 00:19:23,439 Speaker 1: this next quarter. We're expecting GDP to come in at 368 00:19:23,480 --> 00:19:26,760 Speaker 1: four nine. One of the things that the graphics and 369 00:19:26,760 --> 00:19:30,199 Speaker 1: and the shift toward higher value added GDP activities is 370 00:19:30,640 --> 00:19:33,399 Speaker 1: lots of manufact activities leaving China. That's the source of 371 00:19:33,480 --> 00:19:35,560 Speaker 1: job growth for a lot of people. What are they 372 00:19:35,560 --> 00:19:38,720 Speaker 1: going to do about that? Caley Lines mentioned two hours 373 00:19:38,760 --> 00:19:43,240 Speaker 1: ago the modest uproar Bridgewater of Connecticut over Mr Dalio's 374 00:19:43,280 --> 00:19:46,440 Speaker 1: comments on China. You're the kind of guy who sits 375 00:19:46,440 --> 00:19:49,120 Speaker 1: in fancy offices in Hong Kong or in New York 376 00:19:49,680 --> 00:19:54,560 Speaker 1: and advises Western commercial banking on the future of China 377 00:19:54,640 --> 00:19:58,679 Speaker 1: and Hong Kong. What is your advice to Western bankers 378 00:19:59,119 --> 00:20:02,480 Speaker 1: who need to set up shop in the shadow of HSBC. 379 00:20:04,640 --> 00:20:06,840 Speaker 1: That's the toughest job in the world, tom Um. I 380 00:20:06,880 --> 00:20:10,159 Speaker 1: think everyone knows the strategy for Asia in general and 381 00:20:10,280 --> 00:20:13,400 Speaker 1: China particularly is diversify. You cannot put all your as 382 00:20:13,400 --> 00:20:16,440 Speaker 1: in that China basket, which everyone thought was such such 383 00:20:16,480 --> 00:20:19,080 Speaker 1: a valuable basket, because my god, look at that population. 384 00:20:19,200 --> 00:20:21,600 Speaker 1: We could just get a small share of that population, 385 00:20:21,640 --> 00:20:23,440 Speaker 1: We're gonna be rich. I think one of the things 386 00:20:23,480 --> 00:20:26,200 Speaker 1: that we're learning is China wants to help its own 387 00:20:26,240 --> 00:20:30,560 Speaker 1: financial institutions. China wants to have national champions in terms 388 00:20:30,560 --> 00:20:33,320 Speaker 1: of its banking and financial system. I think the advice 389 00:20:33,359 --> 00:20:35,960 Speaker 1: to to anyone, including my former colleagues, the city is 390 00:20:36,280 --> 00:20:39,280 Speaker 1: start to diversify into sources of growth in the rest 391 00:20:39,280 --> 00:20:41,800 Speaker 1: of Asia and the rest of Asia that has become 392 00:20:41,840 --> 00:20:44,800 Speaker 1: less dependent upon China being the hub of the global 393 00:20:44,840 --> 00:20:48,320 Speaker 1: supply chain. That's the that message is. I think it 394 00:20:48,400 --> 00:20:51,440 Speaker 1: has to get out. But unfortunately all of the major 395 00:20:51,480 --> 00:20:53,960 Speaker 1: global banks from Jamie Diamond all the way down to 396 00:20:54,040 --> 00:20:56,879 Speaker 1: whoever else wants to go to China is China remain 397 00:20:57,119 --> 00:20:59,879 Speaker 1: their central focus because of the size of that domestic market, 398 00:21:00,200 --> 00:21:02,159 Speaker 1: which I think has become less available to them. You 399 00:21:02,200 --> 00:21:06,320 Speaker 1: can Singapore in the Lee family, can they be opportunists 400 00:21:06,320 --> 00:21:10,679 Speaker 1: to cure Oh. This is an absolutely phenomenal opportunity for 401 00:21:10,680 --> 00:21:13,760 Speaker 1: Singapore and other financial hubs within Asia, which is to 402 00:21:13,800 --> 00:21:16,919 Speaker 1: try to get that business to be where the entrepreeur, 403 00:21:17,000 --> 00:21:21,480 Speaker 1: where the center of trade, commerce and finance in Ocon 404 00:21:21,680 --> 00:21:23,520 Speaker 1: and the rest of Asia. I think the rest of 405 00:21:23,560 --> 00:21:26,439 Speaker 1: Asia is coming together and in a way trying to 406 00:21:26,520 --> 00:21:29,639 Speaker 1: de emphasize the role of China, which China is finally 407 00:21:29,680 --> 00:21:32,880 Speaker 1: against by becoming much more militaristic and at the same 408 00:21:32,920 --> 00:21:36,000 Speaker 1: time the letting the US become a return to be 409 00:21:36,240 --> 00:21:38,719 Speaker 1: a major power to try to coordinate the kind of 410 00:21:38,760 --> 00:21:42,639 Speaker 1: trade and the global supply chain restructuring that's going on. 411 00:21:43,040 --> 00:21:44,520 Speaker 1: Before you go, I just wanted to turn to the 412 00:21:44,520 --> 00:21:47,399 Speaker 1: Federal's eve quickly, looking ahead to next week. What are 413 00:21:47,400 --> 00:21:50,679 Speaker 1: the spillovers of that Tina monetary policy faster taper to 414 00:21:50,720 --> 00:21:52,480 Speaker 1: the rest of the world. Tom often talks about a 415 00:21:52,520 --> 00:21:55,399 Speaker 1: central banker to the world doesn't have the same effect, 416 00:21:55,400 --> 00:21:58,840 Speaker 1: the same spillovers maybe we used to talk about. Well, 417 00:21:59,040 --> 00:22:01,239 Speaker 1: it still has that fill over because we are a 418 00:22:01,280 --> 00:22:04,000 Speaker 1: major cog in the global supply chain. But one thing 419 00:22:04,040 --> 00:22:07,240 Speaker 1: that's underestimated is where the Biden appointments are going. I 420 00:22:07,280 --> 00:22:08,520 Speaker 1: think one of the things that we have to watch 421 00:22:08,560 --> 00:22:10,480 Speaker 1: out for is whether it said the warrant is going 422 00:22:10,520 --> 00:22:14,720 Speaker 1: to appoint h a vice chair for supervision that will 423 00:22:14,760 --> 00:22:18,600 Speaker 1: pervert the Federal Reserves mandate into being green and and 424 00:22:18,760 --> 00:22:21,920 Speaker 1: one of reducing climate gap. That expanded mandate is something 425 00:22:22,000 --> 00:22:25,119 Speaker 1: I think UH could could really destroy the capital allocation 426 00:22:25,400 --> 00:22:28,439 Speaker 1: mechanism of the banking system and financial markets in general, 427 00:22:28,680 --> 00:22:31,000 Speaker 1: and that kind of distortion something the US economy may 428 00:22:31,000 --> 00:22:33,440 Speaker 1: not be able to recover from. Thank you, sir, of 429 00:22:33,520 --> 00:22:35,720 Speaker 1: Milkin with a strong opinion at the end there on 430 00:22:35,760 --> 00:22:43,639 Speaker 1: the federal serve, which we'll return to another day. And 431 00:22:43,840 --> 00:22:47,560 Speaker 1: Rita sen is with energy aspects, and to make it clear, 432 00:22:48,200 --> 00:22:51,800 Speaker 1: she is hugely qualified to look at the global dynamics 433 00:22:51,840 --> 00:22:56,240 Speaker 1: here and fold them down to her microeconomics of university 434 00:22:56,280 --> 00:22:58,800 Speaker 1: work of a few years ago, and a few other 435 00:22:58,880 --> 00:23:01,040 Speaker 1: selected schools as well. We are thrilled to welcome you 436 00:23:01,080 --> 00:23:03,560 Speaker 1: to Bloomberg in New York. Nice of you to be here. 437 00:23:03,760 --> 00:23:05,880 Speaker 1: Here's what I saw on a thirty two page JP 438 00:23:06,040 --> 00:23:10,400 Speaker 1: Morgan power point. There is an assumption by the oil 439 00:23:10,600 --> 00:23:14,480 Speaker 1: price balls then it will be different this time that 440 00:23:14,720 --> 00:23:19,000 Speaker 1: shell oil production will not come in as oil price 441 00:23:19,359 --> 00:23:22,520 Speaker 1: goes higher. What do you say on that? Yeah, I 442 00:23:22,560 --> 00:23:26,200 Speaker 1: think the price elasticity of shell production has changed dramatically changed. 443 00:23:26,480 --> 00:23:29,040 Speaker 1: This is not three or four years ago. No, it isn't, 444 00:23:29,160 --> 00:23:30,560 Speaker 1: at least right now. It is And I was in 445 00:23:30,600 --> 00:23:32,880 Speaker 1: Texas last week met with lots and lots of shell 446 00:23:32,960 --> 00:23:37,040 Speaker 1: producers and it's a very different mood. In fact, some 447 00:23:37,080 --> 00:23:39,399 Speaker 1: companies who initially said they will grow by five percent, 448 00:23:39,720 --> 00:23:42,280 Speaker 1: they revised it to zero percent and the share prices rose. 449 00:23:42,960 --> 00:23:45,800 Speaker 1: So why would they increase production? But also they are 450 00:23:45,840 --> 00:23:51,640 Speaker 1: facing huge constraints labor, equipment, steel shortages, so a lot 451 00:23:51,720 --> 00:23:55,399 Speaker 1: of them are postponing rigs. Are they COVID constraints or 452 00:23:55,440 --> 00:23:59,560 Speaker 1: is it something that clears With a better pandemic environment, 453 00:24:00,320 --> 00:24:03,040 Speaker 1: The supply chain shortages will clear, but it will probably 454 00:24:03,040 --> 00:24:04,800 Speaker 1: still take a year. Right now, if you order a 455 00:24:04,880 --> 00:24:06,960 Speaker 1: rig you have to wait over a year. Used to 456 00:24:06,960 --> 00:24:09,919 Speaker 1: be three months. Those things should ease over time. But 457 00:24:10,080 --> 00:24:13,800 Speaker 1: is there true in Saudi Arabia as well? Probably not 458 00:24:13,920 --> 00:24:16,120 Speaker 1: as much, But then again they don't need as many 459 00:24:16,240 --> 00:24:19,560 Speaker 1: rigs right. Shale just requires a lot more, but ultimately 460 00:24:19,680 --> 00:24:22,919 Speaker 1: shareholders are not rewarding them to raise production. That's the 461 00:24:22,960 --> 00:24:25,960 Speaker 1: biggest fundamental difference this time around. Okay, that's on the 462 00:24:25,960 --> 00:24:28,399 Speaker 1: shale side. When it comes to OPEC plus, they surprised 463 00:24:28,480 --> 00:24:30,439 Speaker 1: the market to a large extent last week when they 464 00:24:30,480 --> 00:24:33,520 Speaker 1: decided to proceed with a production hike in January. Do 465 00:24:33,600 --> 00:24:35,280 Speaker 1: you think that means that they will then have to 466 00:24:35,960 --> 00:24:40,560 Speaker 1: slow or dial back in the following months. I think 467 00:24:40,760 --> 00:24:44,959 Speaker 1: a lot will depend on how demand is doing or 468 00:24:45,000 --> 00:24:47,480 Speaker 1: the headlines you get because of the variant, the new 469 00:24:47,560 --> 00:24:50,760 Speaker 1: variant and potential new flight restrictions. I think that is 470 00:24:50,800 --> 00:24:53,840 Speaker 1: going to be absolutely critical in determining what Open plus 471 00:24:53,880 --> 00:24:56,600 Speaker 1: two UM. Given the fact that the group has UH 472 00:24:57,040 --> 00:25:00,080 Speaker 1: the current meeting is still ongoing. In theory, they did 473 00:25:00,080 --> 00:25:02,720 Speaker 1: in a journey very clever move, because essentially that means 474 00:25:02,800 --> 00:25:06,120 Speaker 1: that you know, there's enough uncertainty amongst traders that they're 475 00:25:06,119 --> 00:25:09,080 Speaker 1: not going to go necessarily show this market. UM. I 476 00:25:09,119 --> 00:25:11,680 Speaker 1: wouldn't rule out a pose or a cut if demand 477 00:25:11,760 --> 00:25:14,640 Speaker 1: numbers get worse and if the headlines get worse going 478 00:25:14,680 --> 00:25:17,320 Speaker 1: into the fourth Joan meeting, what would you need to 479 00:25:17,320 --> 00:25:19,840 Speaker 1: see that you can will consider a headline getting worse? 480 00:25:19,840 --> 00:25:22,399 Speaker 1: What is the real risk to demand from the omicreon variant? 481 00:25:22,600 --> 00:25:25,800 Speaker 1: The w h O I believe are holding press conference 482 00:25:25,840 --> 00:25:27,959 Speaker 1: this week. I think Open class will be listening to 483 00:25:27,960 --> 00:25:30,760 Speaker 1: that very carefully. And I think for me, the critical 484 00:25:30,800 --> 00:25:33,680 Speaker 1: thing is going to be how much more travel restrictions 485 00:25:33,920 --> 00:25:35,760 Speaker 1: are we going to get in the next couple of weeks. 486 00:25:35,880 --> 00:25:38,760 Speaker 1: A lot of countries are already already tightening up travel 487 00:25:38,840 --> 00:25:41,920 Speaker 1: restrictions UM, and you know, we are in a constant 488 00:25:42,000 --> 00:25:45,600 Speaker 1: conversation with OPEN member countries and ministers about the impact 489 00:25:45,640 --> 00:25:47,800 Speaker 1: on jet fuel demand and overall demand. I think they 490 00:25:47,800 --> 00:25:50,040 Speaker 1: are going to be looking at that very very closely 491 00:25:50,359 --> 00:25:53,840 Speaker 1: because on their own numbers, um Q one builds are huge, 492 00:25:54,000 --> 00:25:56,640 Speaker 1: close to three million barrels per day. So any drop 493 00:25:56,680 --> 00:25:58,240 Speaker 1: off in demand is just going to make that even 494 00:25:58,280 --> 00:26:02,320 Speaker 1: worse so demanding. Lest just city is still they're still visible. 495 00:26:02,520 --> 00:26:06,399 Speaker 1: And am I right? And unknown? Absolutely and unknown right 496 00:26:06,400 --> 00:26:08,840 Speaker 1: now because you know, we just had started traveling. I mean, 497 00:26:08,840 --> 00:26:10,320 Speaker 1: this is my first trip to the U. S AND's 498 00:26:10,400 --> 00:26:13,720 Speaker 1: March of last year. Now more testing required and just 499 00:26:13,880 --> 00:26:17,159 Speaker 1: more it's a bit more onerous right now. Again, a 500 00:26:17,200 --> 00:26:20,040 Speaker 1: lot of people were planning Christmas holidays. Let's see how 501 00:26:20,119 --> 00:26:23,400 Speaker 1: much of that actually goes ahead. But I will say this, Look, 502 00:26:23,440 --> 00:26:25,520 Speaker 1: there's a lot of pent up demand. I mean in 503 00:26:25,560 --> 00:26:28,600 Speaker 1: Texas at least, traffic was as insane in Asia. Asia 504 00:26:28,680 --> 00:26:30,560 Speaker 1: didn't have a summer this year. They were still in 505 00:26:30,760 --> 00:26:33,720 Speaker 1: forms of lockdown. There is a lot of pent up 506 00:26:33,760 --> 00:26:36,800 Speaker 1: demount amongst consumers to go out there and travel. So 507 00:26:36,840 --> 00:26:39,119 Speaker 1: what is your call on oil? As we speak to 508 00:26:39,160 --> 00:26:41,400 Speaker 1: all these experts, some of them in the bright lights 509 00:26:41,440 --> 00:26:44,639 Speaker 1: of major firms and all that. Just as to color, 510 00:26:44,720 --> 00:26:48,000 Speaker 1: it is eighty dollars the new sixty dollars. Do you 511 00:26:48,040 --> 00:26:50,520 Speaker 1: see a trend up to the headline grapping a hundred 512 00:26:50,560 --> 00:26:54,560 Speaker 1: dollars of barrel. We've had eighty five two for over 513 00:26:54,640 --> 00:26:57,040 Speaker 1: three years now. It was based on the thesis of 514 00:26:57,119 --> 00:26:59,320 Speaker 1: underinvestment and that shale is not going to react in 515 00:26:59,359 --> 00:27:02,240 Speaker 1: the same way. So we're not changing that. It's structurally Yes, 516 00:27:02,280 --> 00:27:04,919 Speaker 1: you're exactly right. Eighty is the new sixty. Now to 517 00:27:04,960 --> 00:27:07,280 Speaker 1: get us two hundred dollars, we need an event. You know, 518 00:27:07,320 --> 00:27:12,359 Speaker 1: there's plenty out, but I don't see us going to 519 00:27:12,520 --> 00:27:15,080 Speaker 1: hundred dollars in the near term. Ultimately, COVID is still 520 00:27:15,119 --> 00:27:17,879 Speaker 1: around and that's capping demand. So we really need to 521 00:27:17,920 --> 00:27:21,879 Speaker 1: look through to when the real supply shortages kick in. 522 00:27:22,160 --> 00:27:24,640 Speaker 1: That's when you can see hundred dollars. And we learned 523 00:27:24,680 --> 00:27:27,560 Speaker 1: overnight Emoryta that Saudi Arabia is raising prices for buyrus 524 00:27:27,560 --> 00:27:29,399 Speaker 1: in Asia. In the US, what kind of signal does 525 00:27:29,440 --> 00:27:32,440 Speaker 1: that send to you? So the sally OSPs the official 526 00:27:32,440 --> 00:27:35,080 Speaker 1: selling prices, they are based on a formula. The formula 527 00:27:35,119 --> 00:27:38,320 Speaker 1: was suggesting an increase in price, so it's not um 528 00:27:38,400 --> 00:27:40,760 Speaker 1: it's not a surprise to us if any Yeah, you 529 00:27:40,800 --> 00:27:42,959 Speaker 1: could argue that the increases a little bit more than 530 00:27:43,000 --> 00:27:46,320 Speaker 1: the market was expecting, but again, going into this meeting, 531 00:27:46,440 --> 00:27:49,399 Speaker 1: we were being told that, look, a pause could happen, 532 00:27:49,480 --> 00:27:51,800 Speaker 1: even a cut could be on the table. And then 533 00:27:51,840 --> 00:27:54,239 Speaker 1: then politics got involved, and you know, we saw what 534 00:27:54,320 --> 00:27:56,800 Speaker 1: OPE plus had to do. But Saudi Arabia, for one, 535 00:27:57,000 --> 00:27:59,960 Speaker 1: is absolutely not keen to allow a surplus to build, 536 00:28:00,400 --> 00:28:03,800 Speaker 1: increasing prices to keep consumers, suggest that look, they are 537 00:28:03,800 --> 00:28:07,399 Speaker 1: going to keep a restraint on supplies sent. Thank you 538 00:28:07,480 --> 00:28:09,600 Speaker 1: so much for joining us. Don't be a stranger. Wonderful 539 00:28:09,600 --> 00:28:11,320 Speaker 1: to have you here in that New York can we 540 00:28:11,320 --> 00:28:14,440 Speaker 1: hope to see you in London soon, soom soon. This 541 00:28:14,520 --> 00:28:18,320 Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us 542 00:28:18,359 --> 00:28:22,119 Speaker 1: live weekdays from seven to ten am Eastern on Bloomberg 543 00:28:22,200 --> 00:28:26,040 Speaker 1: Radio and on Bloomberg Television each day from six to 544 00:28:26,160 --> 00:28:30,800 Speaker 1: nine am for insight from the best in economics, finance, investment, 545 00:28:30,960 --> 00:28:36,000 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 546 00:28:36,080 --> 00:28:39,880 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 547 00:28:40,000 --> 00:28:44,120 Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg