Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminal. He writes, Uh,
Speaker 1: the team at pigam PJIM has had a terrific run
Speaker 1: here in the fixed income market because they have been supple,
Speaker 1: they've been able to move, and it's given them a really,
Speaker 1: really interesting track record. Robert Tipp joins us this morning.
Speaker 1: Robert Tip, the basic idea I'm hearing is yields if
Speaker 1: hit the high yield down price up. How opportunistic is
Speaker 1: the first six months of two thousand and twenty two.
Speaker 1: Is it like the one or two other times we've
Speaker 1: seen so it's a great financial crisis where you can
Speaker 1: make total return in bonds. I think that that it is.
Speaker 1: I think it's a matter of what the relative benchmark is.
Speaker 1: We've we've passed the peak in in long term yields,
Speaker 1: and we're probably passing the peak in in the front
Speaker 1: end for yields now and the return on the bond
Speaker 1: market is likely to exceed cash. We're likely to stay
Speaker 1: range bound, kind of centered around where we are right now,
Speaker 1: and so I think traders are going to have to
Speaker 1: be very skilled at trading that range. Investors are going
Speaker 1: to have a much easier time. That's the lesson from
Speaker 1: the past papers. That's the lesson from the earlier analogs
Speaker 1: and history that are like this environment we're in right now.
Speaker 1: My two calls there the long gun. I've heard that
Speaker 1: call from you before. It was months ago and it's
Speaker 1: turned out to be right gunt in two year end.
Speaker 1: Do you think the highs on a ten year behind
Speaker 1: us right now? We're well south of where we were
Speaker 1: at the highs of the year in Q one, pushing
Speaker 1: one eight at south of one four to you just
Speaker 1: said that maybe the peak at the front end might
Speaker 1: have behind us as well, But why right, yeah, I
Speaker 1: think so for for yields out to like your three
Speaker 1: year point for now, and then once you get twelve
Speaker 1: months down the road, if it turns out, you know,
Speaker 1: we're in that part of the probability spectrum of very
Speaker 1: strong economy, inflation staying high. Uh fat is really hiking
Speaker 1: rates three times. Next year you're gonna have a stare
Speaker 1: step higher in the front end. But for now you're
Speaker 1: at that point where the fat has really shot all
Speaker 1: their bullets. They announced taper in November. Within a month
Speaker 1: basically an inter meeting move right to accelerate the taper,
Speaker 1: which is really raises some questions. And the market has
Speaker 1: has moved on a one year one year basis and
Speaker 1: o I s so on average, where will the funds
Speaker 1: rate be on average over the year, you know, from
Speaker 1: point one years out to the point one year to
Speaker 1: two years out over one percent. That's a lot of
Speaker 1: rate hikes price in there. So now the market has
Speaker 1: to sit and wagh and I think it's unlikely they're
Speaker 1: going to push those bets further on the front end
Speaker 1: of the curve. Robot think this is such a fascinating
Speaker 1: moment because the likes of Deutsche Bank are asking a
Speaker 1: question of the weekend last week into this week, how
Speaker 1: much work they need to do. Maybe they need to
Speaker 1: go even higher to tighten in an economy like this one.
Speaker 1: And you're saying they've shuttle their bullets already and they
Speaker 1: haven't even really done anything yet. Robert, can you square
Speaker 1: reconcile what that debate sounds like from from your perspective, right,
Speaker 1: I mean, could be wrong on this, but you know,
Speaker 1: from from our perspective, the way this goes is by
Speaker 1: the time they have the information set to project the
Speaker 1: rate hikes that the FED is projecting to have the
Speaker 1: nerve to do the taper. Look at where we were
Speaker 1: at the end of December when they announced the taper
Speaker 1: to begin in January, You're at three. By the time
Speaker 1: the Fed got around to hiking interest rates at the
Speaker 1: end of you're at two point on the tenure, you
Speaker 1: had a big By the time just before they were
Speaker 1: ready to really you know, get into the motive heights in,
Speaker 1: you were in the low ones. So you're in a
Speaker 1: very dangerous period where the feed is going to be
Speaker 1: an awake time. Uh. They've accelerated the taper against the
Speaker 1: backdrop of going into flu season, of the vacs, of
Speaker 1: a new variant hitting of oil prices fawling. Uh. And
Speaker 1: uh you know so uh you know that. I mean,
Speaker 1: they did get one higher inflation number. But you also
Speaker 1: speak because I think this is so critical. Do you
Speaker 1: see the risk of a Discember eighteen repeat? We're just
Speaker 1: talking about it. This time around, they didn't have to
Speaker 1: back away from getting anywhere close to what people are
Speaker 1: talking about. I think that that power was on the
Speaker 1: right track of trying to keep the markets away from that.
Speaker 1: He was trying to focus on the here and now.
Speaker 1: Uh And now they've lost that narrative a little bit.
Speaker 1: You've seen two weeks of stocks falling and yields falling.
Speaker 1: So I'm assuming that there's been a learning curve and
Speaker 1: that he's going to see that and he's going to
Speaker 1: corral the committee and say, you know, if we want
Speaker 1: to have the flexibility to raise rates next year, if
Speaker 1: we think that's appropriate, we have to keep the markets
Speaker 1: on track, that we are pro grow with stable inflation,
Speaker 1: and that we're not going to have an imbalanced reaction
Speaker 1: as opposed to last time, which was, you know, we
Speaker 1: have a long way to go to neutral. How to
Speaker 1: freak the market out? How do you think the FETE
Speaker 1: is factoring in the fiscal equation? Obviously we don't know
Speaker 1: what the final form of the buildback Better plan will
Speaker 1: actually look like, if it will even get past early
Speaker 1: next year. But if it does, and there's an inflationary
Speaker 1: aspect to you that does that force the feed's hand
Speaker 1: to some extent. Well, I think actually the fiscal is
Speaker 1: another factor that I would have put on the economically
Speaker 1: negative sides. Right. It's not that we are having a
Speaker 1: little bit of stimulus kick in presumably in the years
Speaker 1: they had based on these programs that are passing. Now,
Speaker 1: the out the government will be spending through these programs
Speaker 1: is so much less than what we had in years
Speaker 1: past that effectively growth has been inflated over the last
Speaker 1: couple of years by a couple of things. One is
Speaker 1: the fiscal and then a related item of that, which
Speaker 1: was a spending down of the high savings rate that
Speaker 1: that generated. So I think it's great. I mean, I
Speaker 1: think in terms of growth, that should cushion the deceleration
Speaker 1: and growth that you'd otherwise get. But it's not a
Speaker 1: big step up on the pistol side. It's a step down.
Speaker 1: Roberts Hip. That was a clinic send on best to
Speaker 1: correct and mind roberts Hippi for a page, Jim, Thank you, sir,
Speaker 1: Thank you very much. Right now, with special ability. Sarah
Speaker 1: House is senior economist at Will's Fargo out of Tulane,
Speaker 1: and far more importantly with active work in the measurement
Speaker 1: of what we do in America. Sarah House in your
Speaker 1: books at Tulane and anything I've ever read, we've never
Speaker 1: had a China like economy. Is a nine percent or
Speaker 1: dare I say ten percent nominal g d P healthy
Speaker 1: for America? Well, I don't think it's as healthy as
Speaker 1: as we would typically see. I mean, I think overall,
Speaker 1: these are good problems of the US is having right now,
Speaker 1: where what's getting us to practically a double digit pace
Speaker 1: of nominal GDP is inflation. But that comes down I
Speaker 1: think a lot to this such strong demand that we've seen,
Speaker 1: and so I think some of the problems we say
Speaker 1: we are seeing right now again, these these are in
Speaker 1: many ways good problems, but I think ultimately unsustainable, and
Speaker 1: that's why we expect growth to moderate over the course
Speaker 1: of the upcoming year. Well, it's going to moderate through
Speaker 1: the upcoming year? Does a FED? I mean, the FED
Speaker 1: has to respond to nine nominal GDP right, Well, I
Speaker 1: think we've certainly seen that that shift where they've in
Speaker 1: many ways. I think the October CPI was awake call
Speaker 1: that this inflation environment is going to be somewhat longer
Speaker 1: lasting than they anticipated. And I think more importantly than
Speaker 1: just the curation, it's the magnitude. So we're looking at
Speaker 1: seven percent c P I come Q one, and so
Speaker 1: I think we we have seen the Fed realize that
Speaker 1: in order for inflation expectations to remain close to two percent,
Speaker 1: that they do have to to make adjustments. And I
Speaker 1: think we'll see that very soon. I mean, John, what
Speaker 1: does Corporate America do with this? If they've got nine percent,
Speaker 1: They've got a company growing at three or four or
Speaker 1: five percent revenue growth is going to show eight or
Speaker 1: nine percent revenue growth. They have to adapt to that.
Speaker 1: They've done that this year. They've done pretty well, haven't they.
Speaker 1: Looking forward, let's put all this together. A seven handle
Speaker 1: on c P I. You're looking for that in Q one,
Speaker 1: and we could come close to it a little bit
Speaker 1: later this week. You're looking for six point nine percent.
Speaker 1: Deutsche Bank said the following, Sarah, I'd love your response
Speaker 1: to it. Surely more than a hundred and fifty basis
Speaker 1: points of tightening and needed to slow down eleven percent
Speaker 1: nominal GDP growth to a more sustainable four Sarah, this
Speaker 1: is the conversation and we're having at the moment liftoff
Speaker 1: to one thing. How much timing do we need to
Speaker 1: actually slow down this economy? That is a good question,
Speaker 1: and I think it depends on when it starts. So
Speaker 1: the earlier the FEDS starts, the less tightening we will
Speaker 1: ultimately have to see. But I think it's important to
Speaker 1: remember some of the momentum that's already in trained. So
Speaker 1: we are getting further away from some of this fiscal
Speaker 1: support that really did super supercharge growth and inflation this
Speaker 1: past year, and so I think the tricky thing for
Speaker 1: the FED is that they're most likely to be hiking
Speaker 1: into a slowing economy, and so I think there's still
Speaker 1: a lot of uncertainty about how high ultimately rates have
Speaker 1: to go. But I think what we've seen is the
Speaker 1: FED shifting towards painting that picture and kind of laying
Speaker 1: the groundwork for a faster taper, so they have the
Speaker 1: options to raise rates earlier, so ultimately they might not
Speaker 1: have to raise them quite as as high. You talk
Speaker 1: about a slowing economy, is there a risk that that
Speaker 1: will be exacerbated by the omicron variant? Have you been
Speaker 1: able to model that out at all? So there's still
Speaker 1: so much unknown about AM and cron on that we
Speaker 1: haven't modeled it out in terms of what that's going
Speaker 1: to do to our Our upcoming GDP numbers are our
Speaker 1: inflation numbers, I think when we think of it in
Speaker 1: the directional sense, so it has the chance to dampen
Speaker 1: GDP but intensify these supply chains. So UM might revive
Speaker 1: some of those stacklationary debates that we had in the
Speaker 1: third quarter that I think ultimately we've seen that with
Speaker 1: each successive wave, the impact of the economy has weekended.
Speaker 1: So businesses have been incredibly successful at adapting to this environment.
Speaker 1: Consumers are growing more comfortable, We have more tools in
Speaker 1: order to still carry on with our lives, whether that's vaccinations, boosters, therapeutics,
Speaker 1: and just a great dose of COVID fatigue. And so
Speaker 1: I think unless we see some some really material um
Speaker 1: and scary headlines coming out of Omicron right now, we
Speaker 1: don't think that it's going to have a massive impact
Speaker 1: or really even a major done in terms of the
Speaker 1: trajectory of the near termois economy. So you don't think
Speaker 1: the Omicron variant or even that mixed paper rolls report
Speaker 1: we on on Friday, would give the FED some cover
Speaker 1: to punt until I think it gives them a little
Speaker 1: bit of cover if they want to take it, but
Speaker 1: I don't necessarily think they will. As I mentioned, we
Speaker 1: saw beneficials really since that November meeting lay in the
Speaker 1: groundwork for potentially an even faster taper as early as
Speaker 1: its meeting next week. And so I think when you
Speaker 1: look at what happened with the household survey, so the
Speaker 1: fact that we've seen the unemployment rate declined a full
Speaker 1: percentage point just over the over the past three months,
Speaker 1: we're staring, you know, pretty close to what the FED
Speaker 1: considers full employment over the long term. And of course,
Speaker 1: we still have this inflation issue that is not going
Speaker 1: away anytime soon and is actually going to get worse
Speaker 1: before it gets better. I think that, um, I think
Speaker 1: that well, the Fed might be able to spin it.
Speaker 1: I think ultimately that that they'll most likely probably go
Speaker 1: ahead and accelerate the taper here soon. And now, folks
Speaker 1: on radio and television, the dumb question of the morning,
Speaker 1: I'll take that one, Sarah, I'm looking at, you know,
Speaker 1: unemployment in Nebraska. You're Louisiana. And then I'm sorry, we're
Speaker 1: almost back to February of two thousand twenty. Is this
Speaker 1: American economy back to February of two thousand twenty. I
Speaker 1: think in the aggregate you could say that it's it's
Speaker 1: getting pretty close. Of course, there's tremendous variation where we've
Speaker 1: seen the growth is so different from where it would
Speaker 1: have been expected. So if you look at goods versus services,
Speaker 1: for for example, I think there's still a lot of
Speaker 1: questions when we look at the unemployment and the labor
Speaker 1: market is to what extent workers come back. We saw
Speaker 1: some fine of that with the November jobs report. There's
Speaker 1: still a lot of questions, particularly over older workers those
Speaker 1: retirement age. Are those retirements actually permanent or do they
Speaker 1: come back? But ultimately I think we are barreling very
Speaker 1: quickly towards full employment, and that's also pushing the FED
Speaker 1: towards this more hawk is toad. It's not just inflationists
Speaker 1: that we are seeing the labor market rapidly tighten, and
Speaker 1: those two mandates are in less tension. John Sarah earlier
Speaker 1: took some Barclays doom and blow them, and Barclays pushed
Speaker 1: against the doom and gloom and said they're optimistic. Why
Speaker 1: are we so angst ridden about a wonderfully buoyant American
Speaker 1: economy or is it normal to have OMG fears? Is
Speaker 1: we actually do pretty well? So I think it's it's
Speaker 1: natural to be perhaps more more conservative, or at least
Speaker 1: um more tune shoot to the downside risks than perhaps
Speaker 1: that upside risk. I think the inflation backdrop right now
Speaker 1: is is in many ways driving this. So even if
Speaker 1: if you look at the fact that UM labor income
Speaker 1: is up ten and a half percent over over the year,
Speaker 1: that gets lost in this conversation of you know, six
Speaker 1: percent plus inflation, so nobody really likes UM that the
Speaker 1: actual numbers change is very hard for households and businesses
Speaker 1: to plan, and so I think that overrides this this
Speaker 1: underlying real growth story that we continue to see very
Speaker 1: strong for you guys on radio, Sarah House has a
Speaker 1: perfect Christmas tree, John, Is your Christmas tree that nice?
Speaker 1: It doesn't have to stole until up. If we're rating
Speaker 1: this Christmas tree, I have to say extra marks for
Speaker 1: the star on top. It's very difficult to balance the
Speaker 1: star on the topic. You've got, John, You've got a
Speaker 1: C Milan something up top. You know. I have a
Speaker 1: little ac Milan mascot on top of the Christmas tree.
Speaker 1: That's right, Sarah, thank you, House of West Farca. That's Christmas.
Speaker 1: It's not allowed. The Christmas tree Tom to distract us
Speaker 1: from a really interesting call from Sarah House six nine
Speaker 1: on CPI this on they're looking for a seven handle
Speaker 1: for the first quarter. We stopped the show and we
Speaker 1: do that with William Lee. He is chief economist at Milking,
Speaker 1: but far more truly expert for the International Monetary Fund
Speaker 1: on the Pacific RIM and China. Bill Lee, what do
Speaker 1: we get wrong in the United States of our stereotypes
Speaker 1: of what we think of is Jonathan Spencer's ancient China,
Speaker 1: the World War Two China, or what do we get
Speaker 1: wrong about present day China. We have this image of
Speaker 1: China as a monolithic behemoth that is moving in unison,
Speaker 1: and I think that's far from the case. Right now.
Speaker 1: There's a huge amount of debate and dissension within China
Speaker 1: as the how to sustain growth, how to manage the
Speaker 1: property crisis they have there at the same time inspire
Speaker 1: the people to go out and spend in the light
Speaker 1: of their COVID shutdown policies. There's a lot of tension
Speaker 1: going on there and the UH and and even as
Speaker 1: we talk about our fiscal finances, there's has come to
Speaker 1: home to roosts and spades. China has to finance their
Speaker 1: their state local governments with property sales. They need construction
Speaker 1: to sustain the GDP targets. At the same time they
Speaker 1: got a rate in debt, they've got a rate in
Speaker 1: a lot of credit growth. I have a really great
Speaker 1: respect for what Foreign Affairs has done on this, and
Speaker 1: particularly Daniel Kurtz fail and of course his expertise on
Speaker 1: George Marshall and China. Only what I hear from experts
Speaker 1: is the monolithic view of President g is just flat
Speaker 1: out wrong. How powerful is the Beijing leader? He's become
Speaker 1: more powerful. I think that's the key message that's gonna
Speaker 1: come out of the next People's Congress. Uh Ji Jinping
Speaker 1: has done what no only to other leaders in China
Speaker 1: done Mausey dong and doping. He has become declared horror leader.
Speaker 1: And in doing that, he's he's essentially gotten rid of
Speaker 1: all of his opposition. His his anti corruption policies have
Speaker 1: really gotten rid of any kind of of of challenge
Speaker 1: those leadership, and his strategy is to consolidate by telling
Speaker 1: the people of China. The Communist Party is going to
Speaker 1: deliver them safety, growth and in a better way of
Speaker 1: life by doing what Mound died, which is to say,
Speaker 1: turn domestic, turned inward to sources of growth as sources
Speaker 1: of of of export growth. And I think that he's
Speaker 1: gonna try to tell the world we will be a
Speaker 1: major power handle as as such. But at w t
Speaker 1: O he's also saying we're also an emerging market. We
Speaker 1: want the advantages of being an emerging market. A lot
Speaker 1: of tensions there, but we just want to jump in.
Speaker 1: With a stock move, slid down by three percentage points
Speaker 1: in a pre market some headlines crossing Katie, what do
Speaker 1: you see, Well, it's apportedly an SEC investigation that has
Speaker 1: been opened. This is according to a report from Rutters.
Speaker 1: You are seeing the subsequent move in Tesla shares and
Speaker 1: we understand from Reuters that this is probe is overclaims
Speaker 1: on solar panel defects, so related to that Solar City acquisition.
Speaker 1: I'm assuming, but we will continue to monitor Tesla. Of course,
Speaker 1: we can't shake that off, can they. That's the Royteous report.
Speaker 1: Stocks down about three percent. We'll revisit that ended a
Speaker 1: bit later. In the morning, I'm blowing back TV and radio,
Speaker 1: But I want to return to the leader of the
Speaker 1: Chinese Communist Party and trying to understand from your perspective
Speaker 1: how much strength he actually has in China right now,
Speaker 1: because on the outside looking again, we see these lifelong
Speaker 1: term limits for the Chinese leader, and then we try
Speaker 1: and figure out how much strength, how much control he
Speaker 1: actually has, Bill, how much control does he have a
Speaker 1: tension between what he does at the federal level, uh
Speaker 1: and and what powered Beijing could exerve and what the
Speaker 1: local authorities are able to implement are are really two
Speaker 1: different things. The local authorities are caught in this place
Speaker 1: where they need revenues, so they've got to sell a
Speaker 1: lot of property. Beijing wants to crack down on property
Speaker 1: companies are expanding credit too much, and and they need
Speaker 1: to cut down on properly being the only source of
Speaker 1: savings for the people of China. So the fiscal authorities
Speaker 1: have to expand the portfolio assets available. The local state
Speaker 1: local authorities want the property market to be the core
Speaker 1: place that that that they will get their financing from.
Speaker 1: Lots of problems there. What I've always found amazing, Bill,
Speaker 1: is how much faith confidence they seem to have in
Speaker 1: the Chinese policymaker when they make a move and do
Speaker 1: things like this, that China has control that they can
Speaker 1: let some of the steam out and then they can
Speaker 1: support things again, tap the brake, support things again, keep
Speaker 1: doing it over and over again without making a mistake.
Speaker 1: But as you look at things, what is the risk
Speaker 1: of a policy mistake as they try and engineer the
Speaker 1: inevitable self landing that is nearly always around the corner
Speaker 1: for China. When has it become something something else, something
Speaker 1: to worry about? But what does that look like? Keep
Speaker 1: an eye on what they've just done. They did a
Speaker 1: triple our cut, right they they they've cut the reserve requirements,
Speaker 1: which in the most mostly compous to say, that's expansionary.
Speaker 1: That's gonna expand the growth of credit. At the same time,
Speaker 1: I just told you they're trying to de leverage like crazy. Now,
Speaker 1: how they're going to pull that off is something that's
Speaker 1: that's sort of important because they also have to accept
Speaker 1: that China's growth harget is going to have to reduce
Speaker 1: down to five percent or even below five percent plus
Speaker 1: this next quarter. We're expecting GDP to come in at
Speaker 1: four nine. One of the things that the graphics and
Speaker 1: and the shift toward higher value added GDP activities is
Speaker 1: lots of manufact activities leaving China. That's the source of
Speaker 1: job growth for a lot of people. What are they
Speaker 1: going to do about that? Caley Lines mentioned two hours
Speaker 1: ago the modest uproar Bridgewater of Connecticut over Mr Dalio's
Speaker 1: comments on China. You're the kind of guy who sits
Speaker 1: in fancy offices in Hong Kong or in New York
Speaker 1: and advises Western commercial banking on the future of China
Speaker 1: and Hong Kong. What is your advice to Western bankers
Speaker 1: who need to set up shop in the shadow of HSBC.
Speaker 1: That's the toughest job in the world, tom Um. I
Speaker 1: think everyone knows the strategy for Asia in general and
Speaker 1: China particularly is diversify. You cannot put all your as
Speaker 1: in that China basket, which everyone thought was such such
Speaker 1: a valuable basket, because my god, look at that population.
Speaker 1: We could just get a small share of that population,
Speaker 1: We're gonna be rich. I think one of the things
Speaker 1: that we're learning is China wants to help its own
Speaker 1: financial institutions. China wants to have national champions in terms
Speaker 1: of its banking and financial system. I think the advice
Speaker 1: to to anyone, including my former colleagues, the city is
Speaker 1: start to diversify into sources of growth in the rest
Speaker 1: of Asia and the rest of Asia that has become
Speaker 1: less dependent upon China being the hub of the global
Speaker 1: supply chain. That's the that message is. I think it
Speaker 1: has to get out. But unfortunately all of the major
Speaker 1: global banks from Jamie Diamond all the way down to
Speaker 1: whoever else wants to go to China is China remain
Speaker 1: their central focus because of the size of that domestic market,
Speaker 1: which I think has become less available to them. You
Speaker 1: can Singapore in the Lee family, can they be opportunists
Speaker 1: to cure Oh. This is an absolutely phenomenal opportunity for
Speaker 1: Singapore and other financial hubs within Asia, which is to
Speaker 1: try to get that business to be where the entrepreeur,
Speaker 1: where the center of trade, commerce and finance in Ocon
Speaker 1: and the rest of Asia. I think the rest of
Speaker 1: Asia is coming together and in a way trying to
Speaker 1: de emphasize the role of China, which China is finally
Speaker 1: against by becoming much more militaristic and at the same
Speaker 1: time the letting the US become a return to be
Speaker 1: a major power to try to coordinate the kind of
Speaker 1: trade and the global supply chain restructuring that's going on.
Speaker 1: Before you go, I just wanted to turn to the
Speaker 1: Federal's eve quickly, looking ahead to next week. What are
Speaker 1: the spillovers of that Tina monetary policy faster taper to
Speaker 1: the rest of the world. Tom often talks about a
Speaker 1: central banker to the world doesn't have the same effect,
Speaker 1: the same spillovers maybe we used to talk about. Well,
Speaker 1: it still has that fill over because we are a
Speaker 1: major cog in the global supply chain. But one thing
Speaker 1: that's underestimated is where the Biden appointments are going. I
Speaker 1: think one of the things that we have to watch
Speaker 1: out for is whether it said the warrant is going
Speaker 1: to appoint h a vice chair for supervision that will
Speaker 1: pervert the Federal Reserves mandate into being green and and
Speaker 1: one of reducing climate gap. That expanded mandate is something
Speaker 1: I think UH could could really destroy the capital allocation
Speaker 1: mechanism of the banking system and financial markets in general,
Speaker 1: and that kind of distortion something the US economy may
Speaker 1: not be able to recover from. Thank you, sir, of
Speaker 1: Milkin with a strong opinion at the end there on
Speaker 1: the federal serve, which we'll return to another day. And
Speaker 1: Rita sen is with energy aspects, and to make it clear,
Speaker 1: she is hugely qualified to look at the global dynamics
Speaker 1: here and fold them down to her microeconomics of university
Speaker 1: work of a few years ago, and a few other
Speaker 1: selected schools as well. We are thrilled to welcome you
Speaker 1: to Bloomberg in New York. Nice of you to be here.
Speaker 1: Here's what I saw on a thirty two page JP
Speaker 1: Morgan power point. There is an assumption by the oil
Speaker 1: price balls then it will be different this time that
Speaker 1: shell oil production will not come in as oil price
Speaker 1: goes higher. What do you say on that? Yeah, I
Speaker 1: think the price elasticity of shell production has changed dramatically changed.
Speaker 1: This is not three or four years ago. No, it isn't,
Speaker 1: at least right now. It is And I was in
Speaker 1: Texas last week met with lots and lots of shell
Speaker 1: producers and it's a very different mood. In fact, some
Speaker 1: companies who initially said they will grow by five percent,
Speaker 1: they revised it to zero percent and the share prices rose.
Speaker 1: So why would they increase production? But also they are
Speaker 1: facing huge constraints labor, equipment, steel shortages, so a lot
Speaker 1: of them are postponing rigs. Are they COVID constraints or
Speaker 1: is it something that clears With a better pandemic environment,
Speaker 1: The supply chain shortages will clear, but it will probably
Speaker 1: still take a year. Right now, if you order a
Speaker 1: rig you have to wait over a year. Used to
Speaker 1: be three months. Those things should ease over time. But
Speaker 1: is there true in Saudi Arabia as well? Probably not
Speaker 1: as much, But then again they don't need as many
Speaker 1: rigs right. Shale just requires a lot more, but ultimately
Speaker 1: shareholders are not rewarding them to raise production. That's the
Speaker 1: biggest fundamental difference this time around. Okay, that's on the
Speaker 1: shale side. When it comes to OPEC plus, they surprised
Speaker 1: the market to a large extent last week when they
Speaker 1: decided to proceed with a production hike in January. Do
Speaker 1: you think that means that they will then have to
Speaker 1: slow or dial back in the following months. I think
Speaker 1: a lot will depend on how demand is doing or
Speaker 1: the headlines you get because of the variant, the new
Speaker 1: variant and potential new flight restrictions. I think that is
Speaker 1: going to be absolutely critical in determining what Open plus
Speaker 1: two UM. Given the fact that the group has UH
Speaker 1: the current meeting is still ongoing. In theory, they did
Speaker 1: in a journey very clever move, because essentially that means
Speaker 1: that you know, there's enough uncertainty amongst traders that they're
Speaker 1: not going to go necessarily show this market. UM. I
Speaker 1: wouldn't rule out a pose or a cut if demand
Speaker 1: numbers get worse and if the headlines get worse going
Speaker 1: into the fourth Joan meeting, what would you need to
Speaker 1: see that you can will consider a headline getting worse?
Speaker 1: What is the real risk to demand from the omicreon variant?
Speaker 1: The w h O I believe are holding press conference
Speaker 1: this week. I think Open class will be listening to
Speaker 1: that very carefully. And I think for me, the critical
Speaker 1: thing is going to be how much more travel restrictions
Speaker 1: are we going to get in the next couple of weeks.
Speaker 1: A lot of countries are already already tightening up travel
Speaker 1: restrictions UM, and you know, we are in a constant
Speaker 1: conversation with OPEN member countries and ministers about the impact
Speaker 1: on jet fuel demand and overall demand. I think they
Speaker 1: are going to be looking at that very very closely
Speaker 1: because on their own numbers, um Q one builds are huge,
Speaker 1: close to three million barrels per day. So any drop
Speaker 1: off in demand is just going to make that even
Speaker 1: worse so demanding. Lest just city is still they're still visible.
Speaker 1: And am I right? And unknown? Absolutely and unknown right
Speaker 1: now because you know, we just had started traveling. I mean,
Speaker 1: this is my first trip to the U. S AND's
Speaker 1: March of last year. Now more testing required and just
Speaker 1: more it's a bit more onerous right now. Again, a
Speaker 1: lot of people were planning Christmas holidays. Let's see how
Speaker 1: much of that actually goes ahead. But I will say this, Look,
Speaker 1: there's a lot of pent up demand. I mean in
Speaker 1: Texas at least, traffic was as insane in Asia. Asia
Speaker 1: didn't have a summer this year. They were still in
Speaker 1: forms of lockdown. There is a lot of pent up
Speaker 1: demount amongst consumers to go out there and travel. So
Speaker 1: what is your call on oil? As we speak to
Speaker 1: all these experts, some of them in the bright lights
Speaker 1: of major firms and all that. Just as to color,
Speaker 1: it is eighty dollars the new sixty dollars. Do you
Speaker 1: see a trend up to the headline grapping a hundred
Speaker 1: dollars of barrel. We've had eighty five two for over
Speaker 1: three years now. It was based on the thesis of
Speaker 1: underinvestment and that shale is not going to react in
Speaker 1: the same way. So we're not changing that. It's structurally Yes,
Speaker 1: you're exactly right. Eighty is the new sixty. Now to
Speaker 1: get us two hundred dollars, we need an event. You know,
Speaker 1: there's plenty out, but I don't see us going to
Speaker 1: hundred dollars in the near term. Ultimately, COVID is still
Speaker 1: around and that's capping demand. So we really need to
Speaker 1: look through to when the real supply shortages kick in.
Speaker 1: That's when you can see hundred dollars. And we learned
Speaker 1: overnight Emoryta that Saudi Arabia is raising prices for buyrus
Speaker 1: in Asia. In the US, what kind of signal does
Speaker 1: that send to you? So the sally OSPs the official
Speaker 1: selling prices, they are based on a formula. The formula
Speaker 1: was suggesting an increase in price, so it's not um
Speaker 1: it's not a surprise to us if any Yeah, you
Speaker 1: could argue that the increases a little bit more than
Speaker 1: the market was expecting, but again, going into this meeting,
Speaker 1: we were being told that, look, a pause could happen,
Speaker 1: even a cut could be on the table. And then
Speaker 1: then politics got involved, and you know, we saw what
Speaker 1: OPE plus had to do. But Saudi Arabia, for one,
Speaker 1: is absolutely not keen to allow a surplus to build,
Speaker 1: increasing prices to keep consumers, suggest that look, they are
Speaker 1: going to keep a restraint on supplies sent. Thank you
Speaker 1: so much for joining us. Don't be a stranger. Wonderful
Speaker 1: to have you here in that New York can we
Speaker 1: hope to see you in London soon, soom soon. This
Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us
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Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg