Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: In twenty eleven, I joined a guy named Mohammed el
Speaker 2: Arian on the stage at the Fixed Income Analyst Society
Speaker 2: as he was wandered into the Hall of Fame of
Speaker 2: fixed income folks on Wall Street.
Speaker 1: This is like a geninormous deal.
Speaker 2: Names like Dan Fuss of Loomis Sales, Ed Altman, who
Speaker 2: is one of my first the z Score, and all that,
Speaker 2: a guy named Fabozi. It was inflicted upon us at
Speaker 2: gunpoint to read this. Roger Ferguson, he did okay, and
Speaker 2: every other name. It's a who's who here a fixed
Speaker 2: income There's a new name joining us with a new
Speaker 2: name is Bob Michael Cio, JP Moore. No, forget about
Speaker 2: the title Hall of Fame member.
Speaker 1: Congratulations, thank you.
Speaker 3: It was a conpecional night last night. And by the way,
Speaker 3: Barbara Novic from Blackrock was an honoree, and your own
Speaker 3: Steve Berkeley, the godfather of the entire fixed income index business,
Speaker 3: was also an iki last night. So it's a very
Speaker 3: special night.
Speaker 4: And I just speak to how modest Bob is Tom
Speaker 4: that he came in this morning. And I knew where
Speaker 4: Bob was last night for this event, and Bob came
Speaker 4: in and said, it was a meal last night, and
Speaker 4: he starts talking about a calculator. Yeah, I'm sitting there
Speaker 4: thinking TK not just any meal, not just any meal.
Speaker 5: And you pushed him and he didn't even say it.
Speaker 2: There's so much and within the bond turmoil right now,
Speaker 2: you know, we'll just take a few seconds here. You
Speaker 2: and I were weaned on the same book Sydney Homer,
Speaker 2: who's in the Hall of Fame, and Marty and the
Speaker 2: the Yield Book. I mean, tell us about what that
Speaker 2: book did to you and me, how it straightened out
Speaker 2: our head about discounted cash flows.
Speaker 3: So true story. I heard Marty might be there last night.
Speaker 3: Marty Leebowitz, who co authored that book. I have my
Speaker 3: original copy of the book. I kept it at home.
Speaker 3: I looked at it for weeks, and I decided not
Speaker 3: to bring it in and have a autographic because I
Speaker 3: was afraid he might open it and see I underlined
Speaker 3: the wrong things in it. But he was there. It
Speaker 3: was star after star. So for me, very very specially cool.
Speaker 5: It's a key moment right now in the bond market,
Speaker 5: and I'm so glad that you're here because you've been
Speaker 5: one of the buyers and saying that it is an
Speaker 5: incredible value in the ten year pushing against the grain
Speaker 5: right now. How much conviction do you still have despite
Speaker 5: some of the moves we've seen.
Speaker 3: I have increasing conviction, and I will admit for bond buyers,
Speaker 3: we've been swimming upstream here for the last couple of months.
Speaker 3: And I go back and I look post Silicon Valley
Speaker 3: Bank and we all looked at the market and thought,
Speaker 3: from March to June, we're going to have a pretty
Speaker 3: significant retlacement. Let's sit out of that. I think what's
Speaker 3: been this surprise is from June to this past week,
Speaker 3: rates have continued to go up and the narrative has
Speaker 3: become it's more of a soft landing. You look at
Speaker 3: the fiscal impulse that are coming from all the acts,
Speaker 3: the Inflation Reduction Act, the Chips and Sciences Act, and
Speaker 3: a couple of the others, the Infrastructure Act, and they're
Speaker 3: all rippling through the system. But what we're seeing is
Speaker 3: the underlying data continues to get worse. We look at
Speaker 3: the consumer that continues to get stretched, and we think
Speaker 3: that buying duration in here, we're about to start swimming
Speaker 3: downstream again.
Speaker 5: How do you understand the market moves? How do you
Speaker 5: understand where the bet so far has gone wrong? Given
Speaker 5: the fact that yields have gone up much further than
Speaker 5: anyone thought was passible in this cycle, after so many
Speaker 5: people called this a peak yields.
Speaker 3: Well, I'm not so sure about that. And I've gone
Speaker 3: back and looked at the previous cycles, and actually we
Speaker 3: should have been more surprised if we didn't get this
Speaker 3: backup in yields. And it's happened every single time you
Speaker 3: go back, and about the same magnitude fifty sixty plus
Speaker 3: basis points. We went back and we looked at the
Speaker 3: end of the FED hiking cycle in two thousand and six,
Speaker 3: yields fell dramatically, and then they went back above the
Speaker 3: five and a quarter percent high in June two thousand
Speaker 3: and seven, right before these enhanced cash funds started shuddering.
Speaker 1: So it takes time.
Speaker 3: And then, by the way, they went back in June
Speaker 3: two thousand and eight, they went up one hundred basis
Speaker 3: points from their low in March two thousand and eight.
Speaker 3: So until these long and variable lags hit, you're in
Speaker 3: this never never land of something that feels like a
Speaker 3: soft landing. You're not getting more rate hikes, you're not
Speaker 3: in recession, and the markets will oscillate back and forth,
Speaker 3: and you'll have this battle between the Fed's done it.
Speaker 3: They've engineered a soft landing. They'll congratulate themselves on that
Speaker 3: they did it this time through their summary of economic projections,
Speaker 3: and people like me, you say, look at the underlying data.
Speaker 3: Everything's cracking and then bad things happen.
Speaker 4: You can't throw around six seven eight without really giving
Speaker 4: us an idea of the kind of things you're concerned about.
Speaker 4: Do you see things going badly wrong or just the
Speaker 4: ultimate run of the mill recession that we're not used to.
Speaker 3: Well, you touched on them earlier. It's not true that
Speaker 3: these rate hikes don't have consequences. We almost took out
Speaker 3: the UK pension fund system and the US banking system.
Speaker 3: When you look at the bank term funding program, it
Speaker 3: didn't backstop regional banks, it backstop the entire banking system.
Speaker 3: We're looking at a couple of things. We're looking at
Speaker 3: the consumer facing depleted savings, the excess savings from the
Speaker 3: COVID fiscal transfers. Those are gone, and now they're seeing
Speaker 3: the higher cost of everything. They're facing higher energy prices
Speaker 3: which are going to dip into consumption elsewhere. We look
Speaker 3: at temporary help services jobs. They've turned down, they've never
Speaker 3: turned down before, except in advance of recession. And we
Speaker 3: looked at home price affordability, housing affordability. Kelsey Bearro and
Speaker 3: I we're talking about this morning. It's the worst on record. Now,
Speaker 3: the date only goes back to nineteen eighty six, so
Speaker 3: I don't know before that. But the combination of very
Speaker 3: high home prices and the cost to finance them, we've
Speaker 3: never seen it. So when you hear about the current
Speaker 3: generation talking about how hard it is to buy a
Speaker 3: home and how an expensive, they're one hundred percent right.
Speaker 3: We've never seen this before.
Speaker 2: Here's Bob Michael's in my calculator. This is my personal
Speaker 2: HP twelve C was cfa sticker here, and Bob you
Speaker 2: used to have this, or Bill Gross.
Speaker 1: Had a monro trader at his desk and all that.
Speaker 1: All that's out the window.
Speaker 2: Now here's what our audience knows and what you're dealing with.
Speaker 1: A JP Morgan.
Speaker 2: Every day, the Vanguard Total bond fund is down something
Speaker 2: like twenty one percent from the Great Moderation peak. It's
Speaker 2: down seven point five percent annualized. That's what our audience
Speaker 2: is feeling. How do they turn that around? Leave bonds?
Speaker 3: I'm all for that. We're at an inflection point in
Speaker 3: the economy and the bond market that the last fifteen
Speaker 3: years were not normal, That we got to a structural low,
Speaker 3: that was it, and now we're going to revert to
Speaker 3: something that's more normal, where maybe that first long term
Speaker 3: Fed DOT at four and a quarter percent will be
Speaker 3: the neutral Fed funds rate. I just don't think you
Speaker 3: get there all at once. I think it takes time.
Speaker 3: It took twenty seven years for the Fed to get
Speaker 3: from twenty percent to zero. Maybe this time we go
Speaker 3: from zero to five and a quarter, things slow down.
Speaker 3: They have to come back to two and a half
Speaker 3: to three. Next time they go to six percent, and
Speaker 3: then we figure out what that range is. We've gone
Speaker 3: too far already.
Speaker 2: You're in an officer with a guy named James Diamond,
Speaker 2: and these are huge questions with a lot of zeros.
Speaker 1: To the left of.
Speaker 2: The decimal point. Is the Great Moderation over? Bring up
Speaker 2: the banner again, BMD. This is the Vanguard Index, and
Speaker 2: this is what our audience is feeling. They've been hammered
Speaker 2: twenty one percent from the peak, seven and a half
Speaker 2: percent analyzed off the Bloomberg What do you say to
Speaker 2: Jamie Diamond about this hope and prayer of getting back
Speaker 2: to the Great moderation.
Speaker 3: We all hope that we moderate at a reasonable level
Speaker 3: of interest rates, and I would hope that not tomorrow,
Speaker 3: but say five to seven years from now, a five
Speaker 3: percent ten year treasury is normal, not one and a
Speaker 3: half to two percent where we were. It's just going
Speaker 3: to take time to get there.
Speaker 2: And this is so importantly so five to seven years
Speaker 2: is not in the vocabulary of financial media and Global
Speaker 2: Wall Street to a great extent.
Speaker 3: Although I did hear I should start paying attention to
Speaker 3: the possibility of seven percent.
Speaker 4: Yes, I was just going to go that.
Speaker 6: What did you think about that?
Speaker 5: Did you go over to Jamien and says.
Speaker 6: What are you thinking, volunteer?
Speaker 1: Exactly?
Speaker 5: I was going to go there, but you actually too easier.
Speaker 3: It is a reminder to me that I sit here
Speaker 3: and I think about could the FED go to five
Speaker 3: and a half five and three quarters? They may just
Speaker 3: do one for decoration. Could they go to five and
Speaker 3: three quarter six percent? No, by the time you get
Speaker 3: to that meeting, and I'm glad to know that the
Speaker 3: guy sitting on the top of the house is thinking.
Speaker 1: You idiots. Okay, goodness, what.
Speaker 3: If all this liquidity hasn't been wrung out of the system,
Speaker 3: it reignites and we do get up to something like
Speaker 3: seven percent. It happened in the eighties. So he's running
Speaker 3: the whole show, and I'm grateful that he's thinking about
Speaker 3: those things. And I get to go back to my
Speaker 3: little world of is it five and three quarters or
Speaker 3: are we stuck here?
Speaker 5: So basically the lead is here. You respectfully disagree with
Speaker 5: Jamie Dimond. You'll let him worry about seven percent interest rates,
Speaker 5: but it's not your range in any way, shape or form.
Speaker 3: Well, I think he's pretty clear that's a stress test.
Speaker 3: I don't think that's his base case scenario.
Speaker 5: As we game out how to understand long and variable lags.
Speaker 5: You did talk about that, and I think that that
Speaker 5: is one of the questions that we keep hearing about,
Speaker 5: with the likes of Jim Bullard, the former Saint Louis
Speaker 5: FED president, saying that we've already seen them, and that
Speaker 5: there might be shorter and they might have worked their
Speaker 5: way through the system much more quickly. How do you
Speaker 5: push back against that, especially at a time where you
Speaker 5: do have highly financialized markets that do respond to a
Speaker 5: Federal Reserve forecast what it's going to look like and
Speaker 5: have already been adapting to this reality for a year
Speaker 5: more than a year.
Speaker 3: I would have waited until two years past from the
Speaker 3: period of FED hikes to see whether those long and
Speaker 3: variable lags hit, because the FED zone studies show it's
Speaker 3: eighteen to twenty four months, and here we are about
Speaker 3: twelve to eighteen months into it, so we should just
Speaker 3: be starting to see that. I disagree. I don't think
Speaker 3: they fully hit. I think we've only seen the front edge.
Speaker 3: You talk to anyone in corporate America. The big companies
Speaker 3: have already turned out their debt. They have to go
Speaker 3: back and refinance that you talk to anyone who's looking
Speaker 3: at a home, they can't get a mortgage at three percent.
Speaker 3: They're in that close to eight percent category. And those
Speaker 3: people who own homes, if they need to move, they're
Speaker 3: going to have to step up their mortgage. The cost
Speaker 3: of financing autos has gone up, and we've seen through
Speaker 3: the Chase credit card data that revolving credit usage has
Speaker 3: gone vertical, and that's at a much higher cost of before.
Speaker 3: So that is telling you the crew consumers already stretched here.
Speaker 3: They're trying to maintain their level of spending and it's
Speaker 3: going to cost them more when they put it on credit.
Speaker 5: We've been seeing this, and we've been hearing the acknowledgment
Speaker 5: of this for people who still are not buying treasuries
Speaker 5: right now because they're saying that prices are still going up. Yes,
Speaker 5: the housing market is broken, but house prices are surprising
Speaker 5: to the upside. At what point do you say that
Speaker 5: inflation can stay here, the benchmark rates can stay here,
Speaker 5: even with a downdraft that's being felt and recognized by
Speaker 5: the market.
Speaker 3: Well, I think the end of this week will be
Speaker 3: interesting because on Thursday we get benchmark revisions to GDP.
Speaker 3: We expect those to be lower, so that will raise
Speaker 3: into question how strong the economy is. Then we get
Speaker 3: personal consumption expenditures on Friday. We think that while the
Speaker 3: year over year may come down below four percent, you
Speaker 3: could have another point too. Now you start to print
Speaker 3: a string of point twos, which is bringing inflation pretty
Speaker 3: close to the Fed's two percent target. As long as
Speaker 3: those growth and inflationary pressures, the trajectory is down. At
Speaker 3: some point, the Fed's policies will look outdated.
Speaker 4: Question from my Bloomberg subscriber, Bob, let's finish with that
Speaker 4: unless the FED steps back into the market, Vique, who's
Speaker 4: going to take down the duration supply next year? What's
Speaker 4: the answer to that?
Speaker 3: At the moment, we get inquiry every day from retail
Speaker 3: platforms and from institutions wanting to know is this the
Speaker 3: time to go into bonds? And there's been a lot
Speaker 3: of flow at the start of the year, but I
Speaker 3: think it's only been at the tip of the iceberg.
Speaker 3: I think there are a lot of pension funds and
Speaker 3: insurance companies that are looking at one of the best
Speaker 3: opportunities to de risk in twenty years. They put some
Speaker 3: money to work, they've got a lot more to do.
Speaker 3: There will be plenty of buyers out there out of
Speaker 3: out of interest.
Speaker 6: What's holding them back?
Speaker 4: If I told them they could have these yields a
Speaker 4: couple of years ago, they've been like ready, Like can
Speaker 4: I take that now? What's holding them back?
Speaker 6: Now here it is for sixty.
Speaker 3: I think everyone's concerned about catching a falling knife. And
Speaker 3: I think at the start of the year when they
Speaker 3: put money in, yields rallied very rapidly, and they pulled
Speaker 3: back to see if you would get a pullback. They
Speaker 3: pulled back a bit, and over the summer they put
Speaker 3: them in, and as yields have continued to go up,
Speaker 3: they've just paused.
Speaker 2: In Lincoln Publishing moments ago, Bank of Montreal goes to
Speaker 2: the same illusion Christopherona had this earlier, the sarcastic idea
Speaker 2: of catching a falling knife. What is the signal out there?
Speaker 2: Is it fed rhetoric or is your own power policy?
Speaker 2: Where all of a sudden you go from the fear
Speaker 2: of catching the knife to something else.
Speaker 3: I think you've got to see something which evidences a
Speaker 3: material slow down in the economy. I think everyone's comfortable
Speaker 3: with the disinflation narrative, but concerned that there's a lot
Speaker 3: of data in the labor market that looks strong. When
Speaker 3: we start to see the labor market come under pressure,
Speaker 3: that will turn the tide for sure above.
Speaker 4: I nine you a long time. Always enjoy catching up
Speaker 4: with your congratulations.
Speaker 3: Thank you very much.
Speaker 4: Inducted into the Fixed Income Hall of Fame. But Michael
Speaker 4: at JP Market Asset Management.
Speaker 2: And your equity markets on your new two oh one
Speaker 2: k with a vis at eighteen point twenty six. Now
Speaker 2: to your level, senior US equity strategist ubs Nadi, thank
Speaker 2: you so much for joining give me the siren call
Speaker 2: of whatever the new level of cash is going to
Speaker 2: be five point two five, five point fivey five. Someday
Speaker 2: it's going to be a level like six percent cash.
Speaker 2: Do I need to be in cash?
Speaker 5: No?
Speaker 7: I don't think that you need to be in cash.
Speaker 7: I think that there are opportunities in the market equities
Speaker 7: as well as the bond market. We think that there
Speaker 7: is some upsides to this market. I mean, this wellcome
Speaker 7: pulled back I think is very healthy, and I think
Speaker 7: that it's time to really start to leg into the
Speaker 7: equity markets and in the fixed income market. Even though
Speaker 7: yields have backed up a bit. We do think that
Speaker 7: yields will trend lower in the coming months. We do
Speaker 7: think that the economy will start to slow and the
Speaker 7: FED is done hiking, and that should give some relief
Speaker 7: to bond yields, and so we will look into add
Speaker 7: to bond bonds.
Speaker 5: As well, starting to leg into stocks witch stocks, Matty,
Speaker 5: are you looking at consumer discretionary and saying let's go.
Speaker 7: No, We actually in terms of we're mutual consumer discretionary,
Speaker 7: we maintain a preference for industrial consumer stables and the
Speaker 7: energy sector. We know that energy has done quite well
Speaker 7: over the last few months since we upgraded it three
Speaker 7: months ago, but it has lacked the commodity and we
Speaker 7: continue to believe that oil prices are sustainable in this
Speaker 7: ninety to one hundred dollars range. We're looking for ninety
Speaker 7: five into twenty twenty four, and so we do think
Speaker 7: that there's a little bit more to go in the
Speaker 7: long energy trade. I mean, we particularly like the EMP
Speaker 7: companies and the all service six companies within energy.
Speaker 5: When you talk about yields eventually going down, there's a
Speaker 5: question of what's going to trigger that at a time
Speaker 5: where people are seeing strength that was unexpected in the economy,
Speaker 5: and they're saying that it will cause inflation to stay
Speaker 5: higher for longer, the FED to stay on hold for longer.
Speaker 5: What gives you confidence that both equities can keep doing
Speaker 5: well and we are going to get yields going lower
Speaker 5: typically some sort of symbol of weakness being expressed to
Speaker 5: the market.
Speaker 7: Yeah, we are looking for more sub try and economic growth,
Speaker 7: but we are calling for a recession, and so we
Speaker 7: think that you are going to be in this sweet
Speaker 7: spot where the GDP growth is probably around one percent
Speaker 7: the FED is done hiking. We know about historically when
Speaker 7: the Fed is done hike and BONDI you'll start to fall.
Speaker 7: I mean, we think that inflation is going to continue
Speaker 7: to remain on this downward trend. I mean, for a
Speaker 7: core PCE on Friday, we're looking for about fourteen basis
Speaker 7: points and when you annualize like the last three months,
Speaker 7: you're at two point three percent. And so we think
Speaker 7: that that inflation is going to cause effect to stop
Speaker 7: hiking and look to ease rates in twenty twenty four,
Speaker 7: and so that should be supportive to the equity markets
Speaker 7: as well as the bond market.
Speaker 2: Nadie I'm going to editorialize and suggest that maybe the
Speaker 2: bond market on price is in a bond bear market,
Speaker 2: priced down and staying down and looking for new lows.
Speaker 2: In the equity space, I'm confused. Are we in a
Speaker 2: bull market off the October lows or are we reaffirming
Speaker 2: the bear market reality and stocks?
Speaker 7: Yeah, I think I don't think that you're going to
Speaker 7: re enter our bear market in equities. I mean, reality
Speaker 7: is the earnest recession in our view, is behind us,
Speaker 7: and so we think the upcome and earnesty so of
Speaker 7: course will be important, but we also think that you
Speaker 7: should be certain to see an inflection point in earnings
Speaker 7: after three quarters of negative earness growth. I mean, when
Speaker 7: we look into twenty twenty four, we see high single
Speaker 7: digitus earnings growth really support still a growing economy.
Speaker 6: It's still a consumer.
Speaker 7: Yes, the consumer is pulling back, but the consumer is
Speaker 7: still there. So I mean, when we look into twenty four,
Speaker 7: we're looking for forty seven one hundred and on the
Speaker 7: S and P five hundred. So no, not an indication
Speaker 7: of our retest of the bear market.
Speaker 2: What do you do with tech and other high flyers.
Speaker 2: I'm thinking luxury, which has been beleaguered. I guess, but
Speaker 2: what do you do with those leading sectors from before?
Speaker 7: You were seeing a pullback in tech. We are mutual
Speaker 7: tech up, but we think that this pullback could provide
Speaker 7: some opportunities. We're really going to be important for tech. Again,
Speaker 7: it's the earnest season. This is really real. The rubbery's
Speaker 7: going to hit the road no longer, it's just the
Speaker 7: outer of the term. AI is going to move U stop.
Speaker 7: You really need to start to see revenues come through
Speaker 7: on that or concrete plans around AI. And we do
Speaker 7: think that you are going to start to see some
Speaker 7: growth in some of those areas of tech that had
Speaker 7: been weak or signs of bottom and a stabilization, whether
Speaker 7: that be PC, smartphone or cloud computing. So for globally,
Speaker 7: we continue to like the areas of tech that are
Speaker 7: profitable Number one and two areas of tech where there
Speaker 7: are higher percentage of Hargn revenues and have some secular
Speaker 7: exposure to cecular trends like AI and cybersecurity. We have
Speaker 7: these do think that there's a role for tech in
Speaker 7: the portfolio.
Speaker 5: Nadia. We talk about these macro trends and then we
Speaker 5: get these micro stories like what the FTC did yesterday
Speaker 5: with Amazon, how much and how do you sort of
Speaker 5: view those headlines and translate them into overall theses. How
Speaker 5: much do you care about those type of developments.
Speaker 7: It's important to keep an eye on these things because obviously,
Speaker 7: you know, any of these sort of cases could eventually
Speaker 7: to a breakup of company, which in some view even
Speaker 7: some of the breakup of these larger companies can unlock value.
Speaker 7: So it is something baire watching over the longer charm.
Speaker 7: But I think in the narrow tron what's going to
Speaker 7: matter more is really the earnest growth, what the fat doing,
Speaker 7: and what the economy doing. Not so much on terms
Speaker 7: of a regulatory standpoint, because these regulations take a long
Speaker 7: time to play out and most of the time they
Speaker 7: end up being nothing.
Speaker 4: It's Grant HOWKDA once again for Amazon, Natia, thank you,
Speaker 4: Nati Leveo. Have you Bes Club of Wealth Management?
Speaker 1: Thrilled to have on set this morning. Ed Mills.
Speaker 2: He's Washington policy analyst at Raymond James, has a lot
Speaker 2: of work with Carol Malonium on others out of Boston
Speaker 2: College where you learn politics quickly and Mils, have you
Speaker 2: seen this before? To me?
Speaker 1: A president on a picket line.
Speaker 2: It's original, But is this an original talk about shutdown?
Speaker 8: It's not an original talkout on shutdown. At Raymond James,
Speaker 8: we have enough data to go back to nineteen ninety
Speaker 8: five and say, like what happens in each of these shutdowns,
Speaker 8: And what we found was actually somewhat counterintuitive that on average,
Speaker 8: the market is up about three point two percent during
Speaker 8: government shutdowns. So that tells me that the shutdown in
Speaker 8: and of itself should not be a driver for this market.
Speaker 8: We have a lot of other kind of headwinds that
Speaker 8: we have to focus on, kind of the debt service
Speaker 8: burden for this country, longer term fiscal trends, But government shutdown.
Speaker 8: I don't have a huge concern about market implications for you.
Speaker 2: And I know the photo when you're at Boston College
Speaker 2: of Tip O'Neil sitting with Howard Baker and somehow they
Speaker 2: got things done. That's not happening right now. How do
Speaker 2: you get to compromise and a fractured Washington.
Speaker 6: Very different world.
Speaker 8: I have been focused more on the Senate than on
Speaker 8: the House, and I think almost all of the headlines
Speaker 8: have been about the House of Representatives, when in reality
Speaker 8: the Senate, either sometime in the next day or two,
Speaker 8: maybe past October first, is going to pass a continuing resolution,
Speaker 8: and it's going to have well north of seventy five votes.
Speaker 8: Once that's done, the pressure is going to build on
Speaker 8: the House to at least have a vote on that.
Speaker 8: If they have a vote on what passes the Senate,
Speaker 8: I think there's probably more than three hundred votes on
Speaker 8: that bill. Why that's important is that if you can
Speaker 8: get three hundred votes, you don't have to go through
Speaker 8: the rules committee. Kevin McCarthy does not have to have
Speaker 8: a fight on the floor where he has to have
Speaker 8: Democrats supporting even having a conversation of the bill.
Speaker 6: It's put on the suspension calendar and get that done.
Speaker 5: So just to put a bow on that, are you
Speaker 5: basically saying that there's a good chance that we're going
Speaker 5: to avoid a shutdown more than the market certainly pricing.
Speaker 8: So could we have a shutdown for a day or two.
Speaker 8: It's certainly possible because we're looking at the timing of
Speaker 8: how the Senate is working on this. But if there
Speaker 8: is a shutdown, I don't think it's long lasting because
Speaker 8: the pressure's going to build so much on the House
Speaker 8: to have a vote on what the Senate passes. So
Speaker 8: look at what the Senate does and if it's seventy
Speaker 8: five eighty votes on that continuing resolution, I think that's
Speaker 8: a really positive sign. And another positive sign could be
Speaker 8: if the House is not able to do their own
Speaker 8: cr that adds to the complication if they can do
Speaker 8: that later.
Speaker 5: Today, moving away from the crystal ball of Washington politics,
Speaker 5: question around the actualities of the moment, we were talking
Speaker 5: about the dollar. The dollar being stronger, and this comes
Speaker 5: at a time after years where a lot of nations
Speaker 5: were looking to depreciate their currency.
Speaker 6: Is the stronger value.
Speaker 5: Is a stronger dollar actually a benefit right now to
Speaker 5: the Biden administration.
Speaker 6: Lisa, I could argue yes.
Speaker 8: And when I have been on trips to Europe and
Speaker 8: European investors, they think that the Federal Reserve and Treasury
Speaker 8: are in cahoots here, that all of the push for
Speaker 8: kind of rebuilding the industrial base of the United States
Speaker 8: through the Inflation Reduction Act, Chips and Science Act, Bipartisan
Speaker 8: Infrastructure Bill. If you have a strong dollar, it is
Speaker 8: cheaper to manufacture things here in the United States. And
Speaker 8: to the extent that that's supporting that fiscal policy in
Speaker 8: the background. I do think that's an underappreciated aspect of
Speaker 8: what the Fed has been doing.
Speaker 5: Do you think that that's a valid in any way,
Speaker 5: shape or form or just conspiracy theory from people who
Speaker 5: kind of have sower greapes about the fact that they
Speaker 5: feel like they're on the line.
Speaker 8: Well, I think there's two things, Lisa. One, this is
Speaker 8: the first time and generations where we have challenged the
Speaker 8: industrial base of Europe right rebuilding it here in the
Speaker 8: United States. Two, the Treasury Secretary used to be the
Speaker 8: FED cheer and so I do think there might be
Speaker 8: a few kind of conversations and a little bit of
Speaker 8: work together between the two.
Speaker 2: Tell me about the debt and the deficit. Mia McGuinness
Speaker 2: was on yesterday and it was just brilliant about the
Speaker 2: new of the debt and the deficit. You are a
Speaker 2: grizzled pro at this. Are you concerned about our debt
Speaker 2: and our deficit?
Speaker 6: I have a growing concern.
Speaker 8: I mean one of the things that we look at
Speaker 8: if you check the national debt and the debt service burden,
Speaker 8: the debt service burden is going to eclipse what we
Speaker 8: spend on discretionary spending all of defense in non defense
Speaker 8: discretionary spending pretty quickly here. So for years when I
Speaker 8: first came to Capitol Hill being concerned about the debt
Speaker 8: and the deficit, we're front and center last five ten
Speaker 8: years that really went away. That's returning, and that's going
Speaker 8: to have a huge impact on our politics and you know,
Speaker 8: ultimately on kind of what we're able to spend. When
Speaker 8: I look at the twenty twenty four election, probably one
Speaker 8: of the biggest decisions that's going to be made based
Speaker 8: upon who wins is the tax cuts that expire in
Speaker 8: twenty twenty five. That's another four trillion dollars if you
Speaker 8: want to extend those out. And so if you are
Speaker 8: kind of having a conversation about the debt and the deficit,
Speaker 8: what are you going to do with those tax cuts?
Speaker 8: What is the implication for the economy, especially on the
Speaker 8: individual side, because those are the parts that expire.
Speaker 4: It's such a good point, but you know how this works.
Speaker 4: You get into power and order of a sudden, you
Speaker 4: don't care about the deficit like you used to do.
Speaker 6: Yeah, I's going to change.
Speaker 8: No, I've always said that the you know kind of
Speaker 8: members of Congress really care about.
Speaker 6: The debt and the deficit when they're in the minority.
Speaker 8: Yeah, And one of the big concerns is that the
Speaker 8: way in which you think you should solve it is different.
Speaker 8: So Republicans like to kind of grow kind of revenues
Speaker 8: through kind of tax cuts, and Democrats try to feel
Speaker 8: they want to grow revenue through tax increases.
Speaker 4: Unless, of course, the market forces that discipline onto Congress
Speaker 4: and Washington and away Tom that it hasn't for a
Speaker 4: long time, that would be the change one just.
Speaker 1: Quick, I'm so sorry for this. It should be a
Speaker 1: longer question.
Speaker 2: Do either of these parties feel like they're in the minority.
Speaker 1: They're both acting like they're in the majority.
Speaker 8: I think that when you are in the White House,
Speaker 8: you know, that's kind of what sets it. So, yes,
Speaker 8: Republicans have a majority in the House, but in reality,
Speaker 8: with the Senate a Democratic majority Donald Joe Biden as president,
Speaker 8: they kind of can push on the president and make
Speaker 8: him have kind of tough conversations.
Speaker 4: And thank you smart as always as most of Raymond James,
Speaker 4: I'm ready cent advantagy aspects, calling for one hundred dollars
Speaker 4: oil by Halloween. The last time she was on Bloomberg surveillance.
Speaker 4: In her latest note, she says this will do you not
Speaker 4: see prices lending up in the net term. Crude fundamentals
Speaker 4: have become strong enough that the macro story is no
Speaker 4: longer sufficient to drive price action.
Speaker 6: Tom.
Speaker 4: Instead, crude is starting to drive the macro view.
Speaker 2: Joining us now in New York as usual in London.
Speaker 2: Emory Dessen, co founder, head of Research Energy Aspects, How
Speaker 2: does Saudi Arabia react to the band turmoil and critically
Speaker 2: strong dollar currency turmoil worldwide INOPEC plus and outside OPEK plus.
Speaker 9: I think Tom, that's one of the biggest reasons why
Speaker 9: Prince Abvilaziz has insisted on keeping these cuts. He is
Speaker 9: extremely worried about what he's seeing in the macro market.
Speaker 9: Right Bond markets are reflecting this uncertainty. What does it
Speaker 9: mean for growth? And why preempt that by bringing barrels on,
Speaker 9: for instance, and you get a big slowdown in growth
Speaker 9: only for them to have to cut it back.
Speaker 5: What was the mood like in Oklahoma City, That's where
Speaker 5: you just came from with this conference, David Tullman, interestingly,
Speaker 5: was there of goldmentz Act saying we support you, Which
Speaker 5: is a real change in the tone of some of
Speaker 5: the biggest financial institutions in the US. Was the tone
Speaker 5: optimistic that you could start investing again in a way
Speaker 5: that was more meaningful with the idea of higher oil prices.
Speaker 9: No, I think it's a great question, and I think
Speaker 9: the mood was optimistic because oil prices are at ninety
Speaker 9: But I do think there was a sense of pessimism
Speaker 9: as well because the markets aren't really allowing CEOs and
Speaker 9: companies to invest, shareholder pressure and governments as well around
Speaker 9: the world. I think you're starting to see some European
Speaker 9: government's backtrack over the last couple of days with some
Speaker 9: of their big targets. But in general, i'd say, you know,
Speaker 9: the support from the Western governments has or for oil
Speaker 9: and gas companies remains very limited, with the focus still
Speaker 9: mostly on ESG and renewables.
Speaker 5: Well, there's a larger question here than how high prices
Speaker 5: could go. And the Continental CEO said the oil got
Speaker 5: to get one hundred and fifty dollars without government backing.
Speaker 6: Do you agree?
Speaker 5: I mean, honestly, when I saw that, I was like,
Speaker 5: of course, but that's just my natural internal skeptic skepticism,
Speaker 5: and what's your take.
Speaker 9: I mean, look, those numbers, they're just a number, right,
Speaker 9: Like you can't kindly what's the difference between I don't know,
Speaker 9: one thirty one fifty two hundred. I wouldn't sit here
Speaker 9: and call for those numbers. But I think the point
Speaker 9: I would make is and we've you know, we've been
Speaker 9: calling for high prices for the end of the year consistently.
Speaker 9: End we were very out of consensus. But my kind
Speaker 9: of fear in this market is we have d stocked
Speaker 9: so much inventory right now. What's going on in the US.
Speaker 9: Cushing is dry, and even when cushing has fallen to
Speaker 9: record low levels, it can't keep barrels because the rest
Speaker 9: of the US is so low that it's start continuing
Speaker 9: to pull barrels from Cushing. Dubai, I don't know if
Speaker 9: you saw this morning, Dubai spreads have gone to over
Speaker 9: three dollars backwardation. It's telling you this market is very,
Speaker 9: very tight, and we are not seeing signs of investment
Speaker 9: from companies, not because the CEO doesn't want to. It's
Speaker 9: because we in the world society, governments, they're not allowing
Speaker 9: them to. We do continue to see a huge supply
Speaker 9: gap in the medium term, probably around twenty seven or
Speaker 9: twenty six to twenty nine. We don't have enough projects
Speaker 9: in the pipeline, and that's where OPEK in Saudi Arabia
Speaker 9: and you have to step up, and that's where the
Speaker 9: projects are coming through.
Speaker 4: This is ultimately the point that you're making that perhaps
Speaker 4: some people are getting this back to front. You're saying
Speaker 4: that the macro isn't driving crude crew is going to
Speaker 4: drive the macro. Can you explain that just a little
Speaker 4: bit more.
Speaker 9: You know, the first half of the year, we had
Speaker 9: every FED decision mattered more to crude oil than OPEC decision,
Speaker 9: right Whereas now you've seen even when in the bond
Speaker 9: market the turmoil we've seen, we've seen equities come off,
Speaker 9: but crud's really held up and that's purely driven by fundamentals.
Speaker 9: And the worry now is if crude markets are this tight,
Speaker 9: you start getting all prices going up, and then does
Speaker 9: that influence FED decision again through inflation?
Speaker 4: In your experience, how inelastic is demand for certain crude products?
Speaker 4: How much demand destruction could we see off the back
Speaker 4: of these prices.
Speaker 9: That Tom's going to love this because I, okay, I'm
Speaker 9: going to say this because I have started to see
Speaker 9: this not just in China but even other parts of
Speaker 9: the world. It's very early days, so Tom, don't ask
Speaker 9: me to put a number to this elasticity figure out
Speaker 9: thing I'm going to mention, but I'm sensing that oil
Speaker 9: is becoming more inelastic with Like, if you look at this,
Speaker 9: the global economy this year is going to be less
Speaker 9: than three percent GDP growth, right, but oil demand growth
Speaker 9: is going to be more than two million barrels Now
Speaker 9: China we know still post COVID recovery, but there's something around.
Speaker 9: You know, Initially we all thought working from home will
Speaker 9: lead to lower oil demand. It seems to be going
Speaker 9: the other way because now people are having to come
Speaker 9: into work. There's more driving from further away because people
Speaker 9: have still moved out during the pandemic. We just aren't
Speaker 9: seeing the same impact from higher prices on demand. Again
Speaker 9: early days, maybe people have access savings. Let's see what
Speaker 9: happens next year. But I'm keeping an eye out on that.
Speaker 1: You want to put number.
Speaker 9: I'm telling my group of economists to continue to do that.
Speaker 2: The microeconomist Jeff Curry at glob and Sachs exiting may
Speaker 2: very clear to us that the tangible, real yields globally.
Speaker 2: The end of the free money that we've seen changes
Speaker 2: your world changes oil investment. Are you beginning to see
Speaker 2: indications that a ten year two point two two percent
Speaker 2: real yield changes how oil animals think?
Speaker 6: Absolutely?
Speaker 9: And I think we've been talking about this since April, really, Tom,
Speaker 9: and that is my worry. Nobody wants to hold inventory
Speaker 9: just for basic kind of you know, we always used
Speaker 9: to say we need X number of days of forward cover,
Speaker 9: fifteen twenty, whatever that number is. You need that buffer.
Speaker 9: What if a cargo gets delayed, What if there's a
Speaker 9: Libya happening today? Because of the rising rates, it's too
Speaker 9: expensive and that's what creates the risk of volatility and
Speaker 9: upside for prices going forward.
Speaker 1: So let's reaffering a price. John started with that.
Speaker 2: I mean, you made some real headlines and vision of
Speaker 2: one hundred dollars a earl at ninety five fifty seven
Speaker 2: Brent Corde were really buttressed right up against a ninety
Speaker 2: six level before get us out beyond that to the
Speaker 2: fear of one hundred and twenty a barrel.
Speaker 1: How do we get there?
Speaker 9: I think those kinds of number, yeah, I mean those
Speaker 9: kind of numbers you probably need an event, right, a
Speaker 9: supply shock. But in the day to day trading, if
Speaker 9: we break these technical levels, of course we can make
Speaker 9: a rund up to one hundred dollars. Like I said
Speaker 9: to you last time, calling one hundred and ninety five
Speaker 9: is not a big call, right, regime, No, the new regime,
Speaker 9: I do think, yes. And one of the things to
Speaker 9: bear in mind, there's crude and cracks. Diesel cracks, yes,
Speaker 9: they're coming off, but gasoline and diesel cracks are on
Speaker 9: top of that. So that's where I do think in
Speaker 9: some ways you have to put a risk premium to
Speaker 9: prices because you don't have enough infantries. Once you break
Speaker 9: through this next level, we can then go into that
Speaker 9: paradigm where we just hang around one hundred dollars unless
Speaker 9: there is a clear sign that demand is slowing down.
Speaker 9: We haven't seen that yet.
Speaker 4: Just to finish has sustainable? Do you think the Saudi
Speaker 4: current position.
Speaker 9: Is, Oh, it's very sustainable. They're very very clear that
Speaker 9: we want to make sure inventories are not building, and
Speaker 9: I think there's clearly signs of that. And once and
Speaker 9: also the macro concerns, right, and that's where it becomes
Speaker 9: a bit of a chicken and egg because we've started
Speaker 9: to get worse data from the US that's going to
Speaker 9: concern them even more, and that almost makes them more
Speaker 9: cautious in adding barrels back.
Speaker 4: The reason I asked because there is a monthly review.
Speaker 4: I'm just wondering whether I should ignore the monthly review
Speaker 4: between now.
Speaker 1: And the end of the year.
Speaker 9: I mean, we have seen Prince Abdilzies and even Alexander
Speaker 9: Novac come and extend the cuts to your end. Of course,
Speaker 9: they always keep an eye out on the market. We've
Speaker 9: got the November OPEC meeting as well in Vienna, so
Speaker 9: there are a few things to kind of consider before
Speaker 9: your end. But you know that deal is still I
Speaker 9: mean he's extended it for a reason. He is concerned
Speaker 9: about the global economy. I'm not going to change that overnight.
Speaker 4: We'll say, if they let us attend that OPEQ plus
Speaker 4: mating in Vienna, you don't have to weigh in on that.
Speaker 4: Don't worry about that and redissent a anergy aspects. I'm
Speaker 4: ready to thank you.
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